Chapter 14 Operations—Producing Goods and Services

Learning Objectives After reading this chapter, you should be able to do the

following: Discuss the strategic value-adding role operations plays in the

supply chain. Explain the concept of a transformation process and its application

to goods and services. Appreciate the tradeoffs and challenges involved in production

operations. Understand the primary production strategies and types of planning. Discuss the primary assembly processes and production methods

for goods creation. Describe the various production process layouts. Explain the role of productivity and quality metrics for improving

operations performance. Know how information technology supports efficient production of

goods and services.

Introduction

Operations focus on the “make/build” portion of the supply chain.

Production facilities must interact with supply chain functions.

Operations create the outputs that are distributed through supply chain networks.

The Role of Production Operations in Supply Chain Management

Manufacturing and service production supplies a economic utility called form utility.

An effective production operation is supported by and also supports the supply chain.

Supply chain tradeoffs must be understood and made.

Production Process Functionality

No two processes are organized exactly alike or perform to the same level.

Process functionality helps the success of an organization.

Assemble-to-order methods tend to be more complex, be more labor intensive, and require longer processing time than the mass-production-oriented, make-to-stock operations.

Production Tradeoffs

Processes that can produce a range of products are said to have economies of scope.

Low-volume production runs of a wide variety of products are required to meet changing customer demand.

Tradeoffs between production processes for goods and the costs involved in manufacturing them must also be understood.

Production and supply chain costs vary for make-to-stock, assemble-to-order, and build-to-order products.

Production Challenges

Intensified competition, more demanding customers, and relentless pressure for efficiency as well as adaptability

Competitive pressures for many established manufacturers and service providers

Customers’ demand for choice and rapidly changing tastes

Production Strategies

In the era of mass production, operations strategy focused on reduction, efficiency, and scale.

The push-based strategy works well for supply chains that focus on the immediate delivery of off-the-shelf, low-cost, standardized goods.

Lean production tries to have materials arrive at the needed location just in time for rapid processing and flow through the system.

Lean production relies on pull-based systems to coordinate production and distribution with actual customer demand.

Production Strategies Machine flexibility

general purpose machines and equipment staffed by cross-trained workers provide the ability to produce different types of products

Routing flexibility provides managers with a choice between machines for a part’s

next operation Offshoring

activity be relocated to a contract manufacturer in another country Adaptive manufacturing

provides companies with the ability to replace planning and replanning with execution based on real-time demand

Production Planning Three planning timeframes:

Long-range plans covering a year or more, focus on major decisions regarding

capacity and aggregate production plans Medium-range plans

span 6 to 18 months and involve tactical decisions regarding employment levels and similar issues

Short-range plans ranging from a few days to a few weeks

Production Planning Resource requirements planning (RRP)

long-run, macro-level planning tool Rough-cut capacity plan (RCCP)

checks the feasibility of the master production schedule Capacity requirements planning (CRP)

checks the feasibility of the materials requirement plan Aggregate production plan (APP)

long-range materials plan that translates annual business plans, marketing plans into production plan

Master production schedule (MPS) medium-range plan that is more detailed than the APP

Assembly Processes

(MTS), make to order

(ATO), assemble-to-order

(BTO), build-to-order

(ETO), engineer-to-order

Production Process Layout facility layout

involves the arrangement of machines, storage areas, and other resources within the four walls of a manufacturing or an assembly facility.

successful layout is one that does the following: Reduces bottlenecks in moving people or materials Minimizes materials-handling costs Reduces hazards to personnel Utilizes labor efficiently Increases morale and ease of supervision Utilizes available space effectively and efficiently Provides flexibility Facilitates coordination and face-to-face communication

Production Process Layouts Project layout

fixed location layout where the product remains in place for the duration of production

Workcenter process-focused layout that groups together similar equipment or

functions Manufacturing cell

process-focused layout that dedicates production areas to a narrow range of products that are similar in processing requirements

Assembly line product-focused layout in which machines and workers are

arranged according to the progressive sequence of operations Continuous process facilities

similar to assembly lines, with product flowing through a predetermined sequence of stops.

Packaging

design issues can affect labor and facility efficiency

can provide another level of product differentiation

design impacts ability to use space and equipment

ease of handling during materials handling and transportation

protecting the goods in the package

Production Metrics

use of measurements and key performance indicators (KPIs)

Using KPIs that are too narrow

Encouraging wrong outcomes

Focusing on issues that are not key priorities

should be properly aligned with corporate objectives

Production Metrics Total cost

all money spent on manufacturing must be summarized and the

total compared to the previous period

Total Cycle Time total cycle time is a measure of manufacturing performance that is

calculated by studying major purchased components and determining the total days on hand of each one

Delivery performance is the percentage of customer orders shipped when the customer

requested them to be shipped

Production Metrics

Quality This may vary by company but it must focus on quality from the

perspective of the customer. Safety

The standard metrics of accident/incident frequency, severity, and cost are important to monitor, with continuous improvement (i.e., reduction) as the goal.

Manufacturing Execution Systems (MES)

central software used to monitor and control production operations

linked to other enterprise tools like ERP systems, product life cycle management tools, and scheduling and planning systems

Summary The key concept from this chapter is the critical and codependent link between

production operations and logistics. Just as a heart and arteries need to work together to move blood through your circulatory system, production and logistics must work in concert to move product through the supply chain. For their part, production managers must coordinate demand information, inputs, and resources to transform them into outputs (products and materials) that are desired by customers. The faster and more flexible the transformation processes, the more responsive the production operation can be to changing conditions and disruptions. This, in turn, makes the supply chain more dynamic and competitive.

Additional topics from the chapter include the following:

Production operations include all activities and processes involved in changing the composition of a good or service—component fabrication, product assembly, and service request execution—for the purpose of creating form utility.

Numerous tradeoffs must be made regarding production: volume versus variety, responsiveness or efficiency, make or outsource, and focusing on a limited number of competitive dimensions.

Intensified competition, more demanding customers, and relentless pressure for efficiency as well as adaptability are driving significant changes across many manufacturing industry settings.

Summary (cont.)

There have been significant development and shifts in production strategy. Organizations have advanced from forecast-driven mass production to demand-driven lean, flexible, and adaptive approaches

Capacity planning and materials planning are used to balance inputs, capacity (resources), and outputs so that customer demand can be fulfilled without creating waste.

Most manufacturers use a combination of four production methods—make-to-stock, assemble-to-order, build-to-order, and engineer-to-order—to satisfy demand for their products.

Facility layout involves the arrangement of machines, storage areas, and other resources within the four walls of a manufacturing or an assembly facility.

Facility layout is influenced by the product characteristics, production strategy, and assembly process employed by the organization.

Summary (cont.)

Packaging plays important roles in the smooth transfer of finished goods from the plant to the distribution center and customer locations.

Production KPIs must be linked to corporate goals and objectives, customer requirements, and overall performance of the production operation.

Relevant production KPIs address total cost, total cycle time, delivery performance, quality, and safety.

Manufacturing execution systems software solutions improve an organization’s ability to manage production operations and make them more responsive to disruptions, challenges, and changing marketplace conditions.