426 W3: Case Discussion
CHAPTER 6
Producing Goods and Services
Supply Chain Management: A Logistics Perspective (10e)
Coyle, Langley, Novack, and Gibson
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May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Discussion Outline
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The role of production operations in supply chain management and challenges
Operations strategy and planning
Production execution decisions
Production metrics
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Role of Production Operations in SCM
Role of Production Operations in SCM Production Process Functionality
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Source: Figure 6-1
INPUTS
RESOURCES
OUTPUTS
Feedback
Feedback
TRANSFORMATION
(FORM UTILITY)
Feedback
Links with supply management, input inventory, inbound transport
(TIME & PLACE UTILITY)
Links with warehousing & distribution management, output inventory, outbound transport
(TIME & PLACE UTILITY)
Production Tradeoffs
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TRADEOFFS
Volume
vs.
Variety
Responsiveness
vs.
Efficiency
In-house (Make)
vs.
Outsource (Buy)
Production costs
vs.
Supply chain costs
Production Tradeoffs Volume vs. Variety in Production Process Decisions
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Volume
Variety
Economies of Scale
Higher-volume production with lower cost per unit of output
Suitable in situations where production processes have high fixed costs and equipment.
Economies of Scope
Low-volume production with flexible capabilities of producing a wide variety of products
Important in markets characterized by changing customer demand.
Production Tradeoffs Responsiveness vs. Efficiency in Production Facility Decisions
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Centralized vs. Regional
Centralized production facilities provide operating cost and inventory efficiencies.
Regional production facilities allow companies to be closer to customers and more responsive.
Large vs. Small
Larger facilities with excess capacity provide the flexibility to respond to demand spikes.
Smaller facilities that are better utilized are more cost efficient.
Product-focused vs. Process-focused
Product-focused facilities performing many processes on a single product type are more responsive.
Process-focused facilities concentrating on a few functions across multiple product types are more efficient at its limited scope of activities.
Production Tradeoffs Production Costs vs. Other Supply Chain Costs
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MAKE-TO-STOCK
Total Cost of
Manufacturing
Inventory / Warehouse Costs
Lower
Higher
Cost Per Unit
Quantity
MAKE-TO-ORDER
Assemble-to-Order
Build-to-Order
Engineer-to-Order
Production / Purchasing Costs
Transportation Costs
Production Tradeoffs In-house (Make) vs. Outsource (Buy)
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In-house (Make)
Outsource (Buy)
Internal production processes are more directly visible.
Internal processes are easier to control from a quality standpoint.
Lower product costs
Free-up resources for other, more strategic needs
BUT
More difficult to maintain visibility and synchronize activities.
More difficult to control over quality, intellectual property rights, and customer relationships.
Production Challenges
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Comply with increased regulation and traceability requirements
Keep up with the pace of product innovation
Overcome a shortage of skilled labor
Control capital, pay, and benefits costs
Manage environmental concerns
Balance productivity throughput with maintenance requirements
Manage competitive pressure driven by globalization
Synchronize activities with the supply chain
Operations Strategy and Planning
Operations Strategy and Planning Evolution of Production Strategies
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2010s
2000s
1990s
1980s
1970s
Market differentiator: Cost & inventory protection
Process option: Make-to-stock
Materials release: Push
Performance focus: Production throughput
Smart Manufacturing
Adaptive Manufacturing
Lean Manufacturing
Flexible Manufacturing
Mass Production
Market differentiator: Quality & waste reduction
Process option: Assemble-to-order
Materials release: Pull
Performance focus: Cost management
Market differentiator: Availability & leverage resources
Process option: Build-to-order & engineer-to-order
Materials release: Pull
Performance focus: Segment market share
Market differentiator: Velocity & real-time execution
Process option: Hybrids
Materials release: Pull
Performance focus: Customer satisfaction
Market differentiator: Sensors + Analytics & Real-time optimization
Process option: Extreme customization
Materials release: Pull
Performance focus: Infinite flexibility
Operations Strategy and Planning Production Strategy Challenges
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Limitation on producer’s responsive-ness
Potential for the bullwhip effect
Difficult to achieve economies of scale
Require technological capabilities to achieve the supply chain visibility and synchronization
Increased risk of disruption
Smart Manufacturing
Mass Production
Lean Manufacturing
Flexible Manufacturing
Adaptive Manufacturing
High capital investment
System complexity
Require skilled technician
Require disciplined & high level of planning
Require seamless transfer of knowledge and real-time information
Require capabilities of a network with messaging standards
Require analytical toolkit
Require flexible automation
Operations Strategy and Planning Production Planning
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Source: Figure 6-4
Planning Horizon
Long Range (1 year or more): Product Groups/families
Medium Range (6 –18 months): End items
Short Range (few days–few weeks: Components/ subassemblies
Capacity Plan
Resource Requirements Planning
Rough-cut Capacity Planning
Capacity Requirements Planning
Materials Plan
Aggregate Production Planning
Master Production Scheduling (MPS)
Material Requirements Planning (MRP)
Production Execution Decisions
Assembly Processes
Production Process Layout
Packaging
Production Execution Decisions Assembly Processes
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Assembly Processes
Make-to-Stock (MTS)
Make-to-Order (MTO)
Assemble-to-Order (ATO)
Build-to-Order (BTO)
Engineer-to-Order (ETO)
Production Execution Decisions Comparison of Make-to-Order (MTO) Options
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Table 14.2 Comparison of Make-to-Order (MTO) Options
Source: Table 6-2
ATO
Level of customization
Cost of finished goods
Order fulfillment speed
Process complexity
Example products
Moderate
High
Weeks–months
High
Computer servers, Private jets
Limited
Moderate
Days–weeks
Moderate
Personal computers Automobiles
Total
Very high
Months–years
Extreme
Stadium, JumboTron , Nuclear power plant
BTO
ETO
Production Execution Decisions Production Process Layout
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Production process layout involves the arrangement of machines, storage areas, and other resources within the four walls of a manufacturing or an assembly facility. The layout is influenced by a number of factors.
The production strategy and assembly process employed
Product characteristics (weight, fragility, size)
Demand characteristics (volume & variability)
Service commitments
Production mixes
Facility costs
Images courtesy of University of Twente
Production Execution Decisions Production Process Layout (continued)
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Production process layouts generally fit into a spectrum of work flow that moves from projects to continuous processes.
MANUFACTURING CELL
Product
Standardization
Product Volume
High:
Commodity
Low:
One of a Kind
High
Low
WORKCENTER
ASSEMBLY LINE
CONTINUOUS PROCESS
PROJECT
Production Execution Decisions Packaging
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Well-designed packaging can: (1) Facilitate efficient handling and shipping of the finished goods; (2) Improve labor and facility efficiency (space & equipment utilization); and (3) Provide another level of product differentiation sought by the customer.
Key Considerations:
Ease of handling (materials handling & transportation)
Protection of goods in the package
Compatibility with customers’ materials-handling equipment
Information provision to production & logistics personnel
Sustainability
Images courtesy of Trending Packaging
Production Metrics
Establishing Production Metrics
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Using KPIs that are too narrow.
Encouraging wrong outcomes.
Focusing on issues that are not key priorities.
Use Golden Metrics
Avoid Mistakes
Total cost on a cash basis
Total cycle time
Delivery performance
Quality from the perspective of the customer
Safety in terms of frequency, severity, and cost (financial impact)
Summary
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Process functionality can create a competitive advantage such as: low cost, high quality, fast delivery speed, high delivery reliability, ability to cope with demand change, and the flexibility to offer variety.
Production strategies have advanced from forecast-driven mass production to demand-driven, lean, flexible, adaptive, and smart manufacturing approaches.
Most manufacturers use a combination of make-to-stock and make-to-order (including assemble-to-order, build-to-order, and engineer-to-order) production methods to satisfy demand for their products.
Tradeoffs made regarding production are: volume vs. variety, responsiveness vs. efficiency, in-house vs. outsource, and production costs vs. other supply chain costs and services.
Critical production KPIs address total cost, total cycle time, delivery performance, quality, and safety.
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