Introduction to Production Management. Outline Introduction to production planning Definition and classification of production systems Decisions and performance

Introduction to Production Management

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

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

4

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.

5

The Production System

Production System

Raw materials

Energy

Labor

Equipment

Information

Finished products

Scrap

Waste

6

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.

7

The Inventory System

Supply source Demand source

Inventory

8

The Production-Inventory System

Raw materials

Suppliers Fabrication

Component partsinventory

Assembly

Finished goods inventory

Distribution and sales

9

The Supply Chain

2nd tier suppliers1st tier

suppliers

Assembly/ Manufacturing

Distribution centers

Retailers

10

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.

11

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.

12

Examples of Decisions

13

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)?

14

Examples of Performance Measures

15

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

16

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…)

17

Classification of the Production Process

Production quantity

Significant Events in production Management

19


Production quantity– Mass production – Batch production – Job shop production

20



Product variety

21



Product variety– Single product or product line

– Family of similar products

– One-of-a-kind products

22

Mass Production Systems

23

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

24

Batch Production Systems

25

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

26

Job Shops

27

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

28

Classification of Production Systems (continued…)

Order fulfillment

29

Classification of Production Systems

(continued…) Order fulfillment

– Make-to-stock systems (MTS)– Make-to-order systems (MTO)– Hybrid MTO/MTS

30




Resource configuration

31




Resource configuration– Product layout – Process layout– Cellular layout– Fixed position layout

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.

Product layout

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)

Process Layout

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.

http://www.referenceforbusiness.com/knowledge/Cellular_manufacturing.html

Cellular Layout

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).

Fixed position layout

40


Inputs/outputs

41


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)

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

Manufacturing Strategies

Manufacturing strategy and lead time

Arnold, Chapman, & Clive: Intro Materials Management, 6th ed.


• 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


• 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

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

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

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

The Product Life-Cycle

• 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



– 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

The Product and Process Life CycleM

anu

fact

uri

ng

Co

st

Automation, economies of scale and learning effects

Characteristics of Goods

• Tangible product• Consistent product

definition• Production usually

separate from consumption

• Can be inventoried• Low customer

interaction

Characteristics of Service• Intangible product• Produced and consumed

at same time• Often unique• High customer interaction• Inconsistent product

definition• Often knowledge-based• Frequently dispersed

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%| | | | | | | | |

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

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)

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 −

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

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

http://sey.ydicagri.org/pdfs/sey_III_hizmetler.pdf

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.

• 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

Productivity Calculations

Productivity =Units produced

Labor-hours used

= = 4 units/labor-hour1,000

250

Labor ProductivityLabor Productivity

One resource input - single-factor productivity

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

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.

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




8 titles/day

32 labor-hrs=

Old labor productivity = .25 titles/labor-hr




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






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






=Old multifactor

productivity8 titles/day

$640 + 400






8 titles/day

$640 + 400=

Old multifactor productivity = .0077 titles/dollar






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






8 titles/day

$640 + 400

14 titles/day

$640 + 800

=Old multifactor

productivity

=New multifactor

productivity



26% increase

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.

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)

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

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.

Documents

Introduction to Production Management. Outline Introduction to production planning Definition and classification of production systems Decisions and performance