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Production
Management
Introduction to Manufacturing
and Production Management
Why is manufacturing
important?
Wealth
What is it? The wealth of a country is measured
by its output of goods and services,
this is known as gross national product
Where does it come from? Adding value
Value comes from the transformation of resources into useful goods.
Between the extraction of resources to the provision of finished goods to customers there are a number of stages in which value is added and wealth is created.
Transformation and Value
At every stage there is a transformation taking place
Value is being added by transforming resources into increasingly useful goods and services
Value and Wealth
Cost + Margin = Price
Source: Porter, M. (1985) Competitive Advantage: Creating and Sustaining Superior Performance.
The Free Press: New York
Key to maximising value: Plan and control the flow of materials
Plan the process
Manage the process
Social function or profit?
Decisions based on
profit only give raise to
ethical issues
Click on images
Social function or profit?
Operations
For manufactured products, as well as for
services it holds true that:
There is a transformation of resources into products
or services
There are performance standards
Products and services are designed to satisfy specific
needs
There are processes and work schedules
All these things take place in facilities in which it is
necessary to coordinate human and technological
resources
Operations management
Operations management deals with the
organization and control of all the activities
that add value in the form of products and
services through transformation
processes.
The purpose of production management
To ensure business profitability
by satisfying demand with the right products, at
the time required, with quality,
and as economically as possible by organizing
the use of production factors
Processes
Machinery
Equipment
Labour skills
Material
What is the
environment in which
manufacturing takes
place like?
The Operating Environment
Government regulations
Economy
Global competition
Customer expectations
Quality requirements
Time-based competition
The Operating Environment
Government regulations
Safety standards
Regulations
Economy
Affects demand
Occurrence of shortages and surpluses
Global competition
Reduced costs of transportation and increasing speed
of communications
Increase in number and quality of competitors
Cheap labor in developing countries
The Operating Environment
Customer demands
Lower prices
Improved Quality
Reduced lead times
Improved pre-sales and after-sale service
Product volume and flexibility
The Operating Environment
Quality
Order Qualifiers
Competitive characteristics needed to be a viable competitor
Order Winners
Competitive characteristics that cause customers to choose a firm’s products and services
Order qualifiers and winners drive the manufacturing strategy.
Order qualifiers and winners are not static, and keep changing over time.
The Operating Environment
Time based competition
Shortening life cycles
Customers are increasingly time-sensitive
Customers’ drive for reduced inventories
Market volatility’s impact on forecasts
Industrial buyers tend to look for the right
quality in the shortest lead time
For more information on this topic see Christopher, M. (1998), Logistics and Supply
Chain Management: Strategies for Reducing Cost and Improving Service, 2nd Ed.,
Prentice Hall
The Operating Environment
Can you think of any other factors affecting manufacturing?
Production
Management
Introduction to Manufacturing
and Production Management
What is the internal
operating environment
like?
The Internal Environment
Business Objectives
Business Strategy
Manufacturing Strategy
Manufacturing Process
Organizational Chart
Functional Conflict
Business Objectives
Income = Revenue - Expense
Need to increase income with:
Best customer service
Lowest production costs
Lowest inventory investment
Lowest distribution costs
The Internal Environment
Business Strategy
In order to stay in business a company must be market
oriented and meet customers’ expectations.
Operations must be organized to meet the needs of the
marketplace.
Right quality
Right quantity
Right time
Right place
Right price
How to do it?
The Internal Environment
The Internal Environment
Product type / Manufacturing Strategy
Engineer-to-Order
Make-to-Order
Assemble-to-Order
Make-to-Stock
The Internal Environment
Engineer-to-Order
Manufacturer does not start until the order is
received
Custom designs
Unique products
Long lead time
Inventory purchased after order is received
The Internal Environment
Make-to-Order
Manufacturer does not start until the order is
received
Often uses standard components
Little design time
Lead time is reduced
Inventory held as raw materials
The Internal Environment
Assemble-to-Order
Manufacturer inventories standard
components, some of which have been
manufactured
No design time required
Assembly only required
Shorter lead time
Inventory held as standard components
The Internal Environment
Make-to-Stock
Manufacturer produces the goods in
anticipation of customer demand
Little customer involvement with design
Shortest lead time
Inventory held as finished goods
The Internal Environment
Manufacturing strategy and lead time
Arnold, Chapman & Clive (2008) Introduction to Materials Management, 6th ed.,Pearson Education, p. 4
The Internal Environment
Manufacturing process: Flow
Workstations in sequence needed to make product
Work flows at a nearly constant rate
Little work-in-process inventory
Flow Process Arnold, Chapman & Clive (2008) Introduction to Materials Management, 6th ed.,Pearson Education, p. 4
The Internal Environment
Manufacturing process: Flow (product layout)
Limited range of similar products
Dedicated workstations
Sufficient demand
Capital intensive and high
equipment utilization
Cars are made using a discrete flow process
A variation of this type of process is called continuous
Little work-in-process inventory
Short throughput and manufacturing lead times
Lower unit cost (economies of scale)
The Internal Environment
Manufacturing process:Intermittent
Intermittent Process Arnold, Chapman & Clive (2008) Introduction to Materials Management, 6th ed.,Pearson Education, p. 4
The Internal Environment
Manufacturing process: Intermittent (process layout)
Intermittent lot production
Many different parts processed at workstations
General-purpose machinery
Similar types of skills and equipment in each department
Work moves only to required stations
Here is an example of job shop
Here is another variation called batch process
Relatively easy to change product or volume
Complex and expensive production and inventory control
High work-in-process inventory levels
Longer lead times
The Internal Environment
Manufacturing process: Project
Used for large, complex projects
Project remains in one location for assembly
Avoids cost of moving the product
See how a Boeing 777 is made
Production process
Flow Intermittent
Capital cost
Production volume
Flexibility
Annual setup cost
Run cost
Work-in-process inventory
Production and inventory control cost
Lead time
Flow vs Intermittent
The Internal Environment
Manufacturing as part of a company
Of course, organizational charts vary from company to
company
The Internal Environment
Conflicting objetives
Function Objetives Customer
Service
Production
changes
Inventories
Marketing •High sales
•High product variety
Production
•Low production cost
•High levels of production
•Long production runs
Finance
•Low investment and costs
•Low fixed costs
•Low inventories
Source: Arnold, y Clive Chapman (2008) Introducion to Materials Management, 6ª ed.
Pearson Education, p. 10
Traditional Silo Attitude
Frequently, these functions don’t talk much to each other to
coordinate or to agree on common objectives
They may be competing to achieve their own goals, even
at the expense of the others
E N G I N N E R I N G
M A R K E T I N G
F I N A N C E
P R O D U C T I O N
Q U A L I T Y
Silos: from a material flow perspective
When there is a lack of coordination inventories
tend to accumulate between functions
This situation frequently results in:
Badly coordinated flow
High inventory costs
Low levels of customer service
Purchasing Materials control
Production Sales Distribution
Externally, adversarial relationships
Externally, relations tend to be transactional
The main factor to take into consideration is price
Other factors such as quality and service are secondary
A buyer looks for a supplier that offers a lower price
Conflict takes place over margin
Price = Cost + Margin
Suppliers want to sell at a high price
Buyers want to buy at low price
Usually, the most powerful company extracts part of its
counterpart´s margin
How can we visualize the
flow of materials to
understand it and manage
the value adding process
in a better way?
Integration
The idea of integration started to promote the efforts of many
organizations to change the way they worked inside and outside the
company
Integration takes place over several stages:
Stage1:
Complete Independence
Each function works on its own in complete isolation
from the other functions
Stage 2:
Functional Integration
The company recognizes the need for at least a
limited level of coordination between adjacent
functions
Stage 3:
Internal Integration
The organization establishes a planning and execution
framework to work from beginning to end
Stage 4:
External Integration
Represents true integration as the concept of linking
and coordination extends to customers and suppliers
Integration
Purchasing Material’s
control Production Sales Distribution
Materials Management
Manufacturing Management Distribution
Stage1: Complete Independence
Stage 2: Functional Integration
Materials Management
Manufacturing Management
Distribution
Stage 3: Internal Integration
Suppliers Company Customers
Stage 4: External Integration
Source: Graham C. Stevens, (1989) "Integrating the Supply Chain", International Journal of Physical Distribution & Logistics Management, Vol. 19 Iss: 8, pp.3 - 8
The concept of Supply Chain
“The supply chain is the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the hands of the ultimate customer”
Christopher,1998
Christopher, (1998) Logistics and Supply Chain Management, 2th ed.,Prentice Hall, p.15
The concept of Supply Chain
Includes all activities and processes to supply a product or service to the customer
Externally:
Links many companies
Has a number of supplier/customer relationships
May contain intermediaries such as: wholesalers, warehouses and retailers
Products and services flow from suppliers to customers
Design and demand information flows from customers to suppliers
The concept of Supply Chain
A typical depiction of a supply chain
1-1
Warehouse
Distribution
CenterRetailersRetailers
Customer
FactorySuppliers
Supplier’s supplier
Flow of information and funds ($)
Flow of materials and credit
The concept of Supply Chain
Supply-Production-Distribution System
Arnold, Chapman & Clive (2008) Introduction to Materials Management, 6th ed.,Pearson Education, p. 5
Supply Chain Management
Christopher (1998) defines Supply Chain Management as:
“The management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole”
Christopher, (1998), Logistics and Supply Chain Management, 2th ed.,Prentice Hall, p.18
Supply Chain Management
Three principles of supply chain
management:
Customer focus
Systems thinking
Collaboration
The role of Supply Chain Management
Planning and controlling the flow of
materials
Objectives: Provide the required level
of customer service
Optimize the use of the
firm’s resources
Reduce uncertainty by
coordinating with other
companies
It’s a matter of balance
The role of Supply Chain Management
A matter of balance
Demand Resources
Production
Management
Introduction to Manufacturing
and Production Management
