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Manufacturing Strategy, Planning and Execution
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Major Issues
• Types of manufacturing environments
• Overview of corporate and business strategies
• Order winners and qualifiers
• Operations strategy overview
• Market and resource perspectives of operations strategy
• Functional strategies
• Manufacturing planning and execution
• The reconciliation of functional perspectives
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Major Issues
• Production planning
• Demand management
• Resource planning
• Capacity issues in production planning
• Master Production Scheduling and MRP
• Execution of plans
• Best Manufacturing Practices (BMP)
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Characteristics of Manufacturing Environment
• Increased product diversity• Reduced product life cycles• Increased awareness of the environment
– impact of products & manufacturing systems
• Difficulties of estimating the costs and benefits
• Changing social expectations
-
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Discrete Manufacturing Environments
• Make-to-Stock (MTS)
• Assemble-to-Order (ATO)
• Make-to-Order (MTO)
• Engineer-to-Order (ETO)
Level of complexity
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Discrete Manufacturing: MTO
• An MTO product is finished after receipt of the customer order. Frequently long lead time components are planned prior to the order arriving in order to reduce the delivery time to the customer. Where options or other subassemblies are, the stocked prior to customer orders arriving, the term ‘assemble to order’ is frequently used”
APICS (1987)
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Discrete Manufacturing: ATO
• Typically, delivery time requirements are shorter than total manufacturing lead time
• Production is usually started in anticipation of customer orders
• Basic components and subassemblies are produced using a push system (MRP)
• Final assembly is managed via a pull system (JIT)
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Major Issues
• Types of manufacturing environments
• Overview of corporate and business strategies
• Order winners and qualifiers
• Operations strategy overview
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Corporate Strategy
• How the firm plans to use all its resources and functions to gain competitive advantage
• Corporate objectives typically include:– Growth– Survival– Profit– Return on Investment– Other financial measures– Employee policies– Environmental policies– ...
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General Business Strategy
• Cost leadership
• Differentiation– Create unique products commanding a premium
price based on:• Brand image• Quality• Features/options• Rapid delivery• Superb customer service
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Major Issues
• Types of manufacturing environments
• Overview of corporate and business strategies
• Order winners and qualifiers
• Operations strategy overview
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Competitive Priorities
• Basic strategies:– Cost– Quality– Speed of delivery– Product/volume flexibility– Innovation
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The Order Qualifiers
• These are product or service characteristics that allow your company to be present in the market. They include:– Quality– Price– Reputation– Number of years in business– Reliability– ...
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The Order Winners
• These are product or service characteristics that allow your company to win orders in the market. They include:– Quality– Price– Speed of delivery– Consistency of delivery– Reliability– ...
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Order Winners and Qualifiers
• Over the lifetime of a product operations-related criteria are most important winners and qualifiers
• The relative importance (weights) of various order winners changes as products travel on the product lifecycle curve (over time) and must be continuously monitored and updated for each product and each market segment
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Major Issues
• Types of manufacturing environments
• Overview of corporate and business strategies
• Order winners and qualifiers
• Operations strategy overview
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Operations Strategy: Definition
• Operations strategy involves the decisions which shape the long-term capabilities of the company’s operations and their contribution to overall strategy through the on-going reconciliation of market requirements and operations resources
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Corporate
Objectives
Marketing Strategy
Order Winning Criteria
Manufacturing Strategy
Process Choice Infrastructure
• Growth• Survival• Profit• Return on
investment• Other
financial measures
• Product markets and segments
• Range • Mix • Volumes • Standardization
vs. customization • Level of innovation • Leader vs.
follower alternatives
• Price • Conformance
quality • Delivery speed • Delivery reliability • Volume flexibility • Color range • Product range • Design • Brand image • Technical support • After sales support
• Choice of alternative processes
• Tradeoffs embodied in process choice
• Role of inventory in process configuration
• Make of buy decisions and supply chain management
• Capacity size • Capacity timing • Capacity location
• Functional support for operations
• Manufacturing planning and control systems
• Quality assurance and control
• Manufacturing systems engineering
• Clerical procedures • Compensation
agreements • Work structuring • Organizational
structure
Developing an Operations Strategy
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Components of the Operations Strategy
Operations Mission and Strategy
ProductDesignProcurement
Quality Management
Schedule
Location
Layout
Process Design
Reliability &Maintenance Inventory
HumanResources &Job Design
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Operations has to cope with the clash between the nature of external markets and the nature of internal resources
Operations Resources are….
Difficult to change
Technically constrained
Complex
Market Requirements are….
Dynamic
Heterogeneous
Ambiguous
The Dichotomy of Business Views
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“Hard” issues
“Soft” issues
Process Technology
Development and Organization
Supply NetworkCapacity
Operations Decisions are Structural & Infrastructural
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Understanding Markets• Understanding markets and agreeing on how to
approach them is critical to strategy implementation success– In-depth debate about the markets, their needs and
manufacturing/operations capabilities must involve all functions (cross-functional team approach)
– Each organizational function must develop strategies to support current and future market needs
– Each function’s strategic contributions are expressed in terms of priorities, developments and investments or resources
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Major Issues
• Market and resource perspectives of operations strategy
• Functional strategies
• Manufacturing planning and execution
• The reconciliation of functional perspectives
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Operations Resources
Market Requirements
OPERATIONS STRATEGY
Strategic Reconciliation
Operations strategy reconciles the requirements of the market with the capabilities of operations resources
Market Needs vs. Operations Capabilities
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Understanding markets
Understanding resources and
processes
Performance Objectives
Market Positioning
Customer Needs
Competitors’ Actions
Required performance
Operations Strategy
Decision Areas
Tangible and Intangible Resources
Operations Capabilities
Operations Processes
Strategic decisions
Two Operations Strategy Perspectives
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PERFORMANCE OBJECTIVES
•Dependability•Speed of delivery•Conformance quality•Speed to market
MARKET POSITION
•Innovative products•Time to market•Product range •Coordinated launches
Differentiation based on:
CUSTOMERS Segmentation based on:
COMPETITORS
Traditionally weak in:
•Promotion•Design innovation•Conformance quality
Example: The Market Analysis for a Hydraulic
Pumps Manufacturer •Purchase volume•End-item application•OEM or replacement •Geographic location
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Resources Tangible
•Equipment•Staff
Intangible•Reputation•Relationships
(internal and external)•Experience
•Application of leading-edge high-pressure
technology and electronic controls
• Articulation of client requirements
Capabilities
• Integration of equipment supply and client
requirements
• Design process
• Supplier liaison process
Processes
•Location•Computer simulation capability•Internet specking by customers•Supplier development•Order tracking system•Organizational structure/culture•Staff meetings
Operations Strategy Decisions
Example: Operations Strategy Decisions for a
Hydraulic Pumps Manufacturer
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Operations Resources
Understanding Resources and
Processes
Strategic Reconciliation Market Requirements
Understanding Markets
CapacitySupply networksProcess technologyDevelopment and organization
QualitySpeedDependabilityFlexibilityCost
Operations Processes
Operations Resources
Operations Competences
Market Positioning
Market Segmentation
Competitor Activity
Strategic Decisions
Operations Strategy
Decisions
Required Performance
Performance Objectives
Operations strategy is the strategic reconciliation of market requirements with operations resources
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Major Issues
• Market and resource perspectives of operations strategy
• Functional strategies
• Manufacturing planning and execution
• The reconciliation of functional perspectives
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Functional Strategies
• Functional strategies are typically developed independently of one another and may be inconsistent with corporate strategic objectives
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Functional Perspectives
• Inputs from all functions that are engaged in the provision of product or interface with the marketplace hold insights into customer requirements
• One function cannot dominate the process since this leads to overemphasizing the need to respond to customer’s actual or perceived needs and demands
• Checking the impact on a business must be part of a firm’s overall assessment of a market, segment or customer
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Functional Strategies
Firm/business unit strategy
R&D Marketing Engineering Manufacturing
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Functional Strategies
• Functional strategies should be developed in an integrated process and be consistent with corporate strategic objectives
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Functional Strategies
Firm/business unit strategy
R&D Marketing Engineering Operations
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Major Issues
• Market and resource perspectives of operations strategy
• Functional strategies
• Manufacturing planning and execution
• The reconciliation of functional perspectives
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Manufacturing Planning and Execution
Resource Planning Production Planning Demand Management
Master ProductionScheduling
Detailed MaterialPlanning
Detailed CapacityPlanning
Material and Capacity Plans
PurchasingOrder Release
Front End
Engine
Back End
Planning
Execution
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Manufacturing Planning and Execution
• Overall manufacturing planning
• Detailed material planning
• Executing the plans
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Manufacturing Planning and Execution
• Planning involves converting firm orders and demand forecasts into material requirements using:– Production plans (months) – MPS (weeks)– MRP (weeks)
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Manufacturing Planning and Execution
• Execution involves, for each work center:– Issuing daily assembly schedules– Using component inventories to convert them
into finished products for order fulfillment– Issuing daily shipping schedules
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Manufacturing Planning and Execution
• It is expected to have a discrepancy between the resources planned vs. the resources available during execution
• Deficiencies in planning must be overcome by actions in execution
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Manufacturing Planning and Execution
• Approaches to addressing discrepancies between planned and available resources during execution: – Discipline in execution – sticking to the MPS– Total cycle time reduction – Simplifying product lines
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Major Issues
• Market and resource perspectives of operations strategy
• Functional strategies
• Manufacturing planning and execution
• The reconciliation of functional perspectives
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Firm orders from knowncustomers
Forecast of demand
from random customers
Aggregate Product Plan
Master Production Schedule
(MPS)
Material Requirements
Planning (MRP)
Engineering design changes
Bill of Materials (BOM) file
Inventory transactions
Inventory records
file
Reports
The Reconciliation of Functional Perspectives
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The Linkages of Functional Planning
• Various functions including marketing, finance and production, interact in formulating a “game plan”
• A game plan reconciles market and resource perspectives in formulating a production plan
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Resource Planning Production Planning Demand Management
Master ProductionScheduling
Marketing Planning “The Game Plan” Financial Planning
Markets
The Linkages of Functional Planning
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Major Issues
• Production planning
• Demand management
• Resource planning
• Capacity issues in production planning
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Production Planning
• Production planning is the forum for reconciling various functional perspectives from the point of view of operations
• Production planning facilitates a dialogue between manufacturing and top management
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Production Planning
• Production planning uses a common business terminology in communicating with manufacturing and non-manufacturing executives
• It is stated in commonly understood measures, such as aggregate units
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Top Management Role in Formulating a Game Plan
• Commitment to the game planning process
• Align functional strategies with the corporate strategy – Resolve conflicts between functional goals – Resolve tradeoffs between functions prior to
approving plans
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The Role of Functions in Executing a Game Plan
• All functional areas must “hit” the agreed upon plan – Communication … especially in instances
when there are problems in hitting the plan
• The most critical issue is integration of planning and control between marketing and production
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Resource Planning Production Planning Demand Management
Master ProductionScheduling
Markets
Overall Manufacturing Planning
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Overall Manufacturing Planning
• Activities for overall direction setting for manufacturing– Demand Management– Resource Planning– Master Production Scheduling
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Major Issues
• Production planning
• Demand management
• Resource planning
• Capacity issues in production planning
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Demand Management
• Forecasting
• Order entry
• Order promising
• Distribution planning
• Other activities
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• Is a link to the market place
• It should enable coordination between manufacturing, markets, other plans and warehouses
• Demand management provides inputs to:– MPS (for end items)– MRP (for spare parts)
Demand Management
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• Account for all sources of demand – Finished products – Spare parts – Intra-company requirements – Samples – Pipeline inventory
Demand Management
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Major Issues
• Production planning
• Demand management
• Resource planning
• Capacity issues in production planning
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Resource Planning
• Long range capacity planning to produce products – Involves converting aggregate production
plans into resources such as labor hours and machine hours
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Resource Planning
• Long range capacity planning to produce products – Involves converting aggregate production
plans into resources such as labor hours and machine hours
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Major Issues
• Production planning
• Demand management
• Resource planning
• Capacity issues in production planning
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Resource PlanningResource Planning Production Planning Demand Management
Master ProductionScheduling
Material RequirementPlanning
Capacity RequirementPlanning
Vendor Systems
Rough-cut CapacityPlanning
Shop-Floor SystemsInput/Output
Analysis
Finite Loading
Capacity Issues in Production Planning
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Rough-Cut Capacity Planning (RCCP)
• Rough estimate of capacities required to satisfy the master production schedule – RCCP does not take into account WIP
inventory,scheduled receipts, planned orders, etc.
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Example: Rough-Cut Capacity Planning
• Suppose that 35,000 hrs of final assembly time are available per week. The MPS for a product is 2,000 units/week. One unit requires 20 hrs of assembly time. The capacity required is (2000)(20) = 40,000 hrs.
• Therefore, an additional 5,000 hrs of final assembly capacity will be needed in that period
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Capacity Requirements Planning (CRP)
• Detailed capacity plans
• Capacity need for machine centers and labor– CRP takes into account WIP
inventory,scheduled receipts, planned orders, etc.
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Example: Capacity Requirements Planning
• Suppose that 35,000 hrs of final assembly time are available per week. Also, an equivalent of 7,500 hrs is available in the form of WIP inventory
• Therefore, in reality, we have 2,500 hrs of excess capacity
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Finite loading
• Allocation of capacity to work orders subject to available capacity constraint
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Input/Output Analysis
• Monitoring consumption of capacity during execution phase
• Compare actual inputs with planned inputs and
• Actual outputs with planned outputs
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Major Issues
• Master Production Scheduling and MRP
• Execution of plans
• Best Manufacturing Practices (BMP)
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Master Production Scheduling (MPS)
• Master Production Schedule (MPS) is an anticipated build schedule for finished (end) products given production capacity constraints and capacity utilization desires– MPS is NOT a forecast – MPS is a primary input to generate material
requirement plans (MRP)
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Master Production Scheduling (MPS)
• In an ATO environment, Final Assembly Schedule (FAS) is the actual build schedule, i.e. it is the build schedule with the exact end-item options
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Master Production Scheduling (MPS)
• MPS is the basis for key inter-functional trade-offs – For example, order processing activity
coordinates marketing and production perspectives
• MPS is the basis for developing manufacturing budgets in line with financial budgets
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Master Production Scheduling (MPS)
• In determining MPS trade-offs need to be made between market and resource perspectives– Accommodating too many changes in MPS
results in productivity loss and inefficiency– Allowing too few changes in MPS may result
in poor customer service and increase inventory
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Master Production Scheduling (MPS)
• Hence, marketing and production should work together to respond to product mix changes
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Master Production Scheduling (MPS)
• Hitting the production plan defined:
(FAS) = (MPS) = Production Plan
– Ideally, the planned and actual resource usage to meet the market requirements should be the same
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Master ProductionScheduling
Material RequirementPlanning
Detailed CapacityPlanning
Material and Capacity Plans
PurchasingOrder Release
Master Production Scheduling (MPS)
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Material Requirements Planning (MRP)
• Detailed material plans for dependent demand items
• Period-by-period plans for parts and raw material
• MRP is a priority-setting scheme
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A
Independent Demand Items
B(4) C(2)
D(2) E(1) D(3) F(2)
Dependent DemandItems
Independent vs. Dependent Demand
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Material Requirements Planning (MRP)
• Basic Inputs to MRP– MPS– Bill of Material (BOM)
• A list and amount of components and/or material required to produce a product
– Inventory Status File
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Major Issues
• Master Production Scheduling and MRP
• Execution of plans
• Best Manufacturing Practices (BMP)
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Execution of Plans
• Execution of plans uses the purchased or internally manufactured materials for order fulfillment – Shop-floor scheduling and control ---
releasing production orders and control– Vendor scheduling and control --- releasing
purchasing orders and follow-up
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Execution of Plans
• Measurement of actual execution results relative to the plans
• Order status information and warning signals to MRP
• Peaks and valleys in capacity requirements make execution more complicated and difficult
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Major Issues
• Master Production Scheduling and MRP
• Execution of plans
• Best Manufacturing Practices (BMP)
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Best Manufacturing Practices (BMP) Areas
1. Lead Time Reduction
2. Streamlined Flow
3. Quick Changeover
4. Cellular Manufacturing (Focused Factories)
5. Empowered Teams
6. Cross-Functional Teamwork
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Best Manufacturing Practices (BMP) Areas
7. Employee Involvement & Commitment
8. Process Reliability
9. Continuous Improvement
10. In-Process Quality
11.Seamless Shift Operations
12.Standard Operating Procedures
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Best Manufacturing Practices (BMP) Areas
13.Goal Deployment
14.Visual Management Systems
15. Incentives, Rewards & Recognition
16.Plant Safety, Loss Prevention & Housekeeping
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Best Manufacturing Practices (BMP) Areas
17.High-Performance Leadership
18.Supplier Partnerships
19.Cross-training
20.World-Class Performance Measures
Source: http://www.granite-bay.com/best-manufacturing-practices.html
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Best Manufacturing Practices: Local Examples
• Kohler Generators http://www.kohlerco.com/hub/powersystem.html
– Migrating products from MTO to ATO environments
• Use of pull system for final assembly• Use of push system for material planning • Use of manufacturing cells for subassemblies • Exploring commonality of parts
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Best Manufacturing Practices: Local Examples
• Kohler Generators http://www.kohlerco.com/hub/powersystem.html
– Innovations in visual inventory management – Innovations in managing suppliers
• Expanding the scope of vendor-managed inventory • Enforcing discipline in deliveries • Globalization of supply chain
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Best Manufacturing Practices: Local Examples
• Kohler Generators http://www.kohlerco.com/hub/powersystem.html
– Process improvements • New painting technology • Optimization software for laser cutting of sheet
metal