at i W q Nigel PRODUCTION AND INVENTORY MANAGEMENT (PIM) ENVIRONMENTS Production and:i ment (PIM) can be defined as the design, operation, and control of systems for the manufacture and distribution of prod- ucts. PIM has three levels of applicability in the Ipgistics chain: the retail level, the wholesale (warehouse) level, and the manufacturing level. Manufacturing environments exhibit a great deal of variability from the massive cauldrons full of molten steel found in Pittsburgh to the delicate assembly of computer compo- nents, often performed in environments controlled more carefully than surgical rooms. Two factors common to all PIM environments are close contact with people and the need for a consistent, well-defined|planning and control system. PIM provides many different, rewarding, career opportunities, in areas such as supervision, materials planning, scheduling, purchasing, inventory control, and management consulting. The career path leads through positions such as mate- rial manager, plant manager, vice-president of operations, and beyond. This book is about both the environments of and the systems for PIM. Both production management and inventory management occur in a variety of environments. Decisions that work well in one context sometimes work poorly in others. For that reason, we will present several specific situations and discuss decision tools appropriate to each. There are three characteristics that deter- mine the efficacy of a TanSERISHIpEARPSRGARTCUESU pronation These are the product positioning strategy, the general organization of the production process (the process positioning strategy), and the choice.of technology. A company must also have a strategy for distributing and providing field support for the product. This chapter begins with the choice of product positioning strategy, production process, and type of technology. These decisions are inter- Escaneado con CamScannerTHE PRODUCT POSITIONING STRATEGY The product positioning strategy refers to the type of inventory an organization chooses to maintain. The product positioning strategy may be any one or a combination of the following: | A. Make finished products to stock (maintain and sell from finished product inventory) . B. Assemble finished produéts tolorder (maintain an inventory of compo- nents, subassémblies, and options) > C. Custom desigh’and make finished products to order (maintain a stock of commonly ustd-material) The major determinants of the product positioning strategy are the manu- facturing lead timed the time a customer is willing to wait for product delivery, and the degree of customization desired by the customer. If the time a customer is willing to wait for-delivery is less than either manufacturing lead, time or assembly lead time, an organization must maintain an inventory of finished goods for immediate purchase (or lose the business to competitors who have suitable items already available). If-the customer is willing to tolerate some delay in order to have a prod- uct custom-assembled (or manufactured), the manufacturer would prefer to operate assemble-to-order or make-to-order. Consider a dress shop with 500 dress styles, 10 drets sizes, and 100 choices of material (varying in color, pat- tern and composition). Then there can be 500,000 possible dress types. An impossibly large firjished goods inventory would be required to stock every one of each type at each retail outlet. However, if the manufacturer is able to de- liver any dress within 48 hours and the customer is willing to wait 48 hours to have precisely the desired product, then the inventory required is merely a sufficient stock of each of the 100 choices of material. Some or all of the savings in inventory expense can be passed to the consumer in order to increase the sales volume ahd profitability of the manufacturer. ‘Thus, a challenge for any make-to-stock manufacturer is to determine how to lower martufacturing lead time to move to an assemble-to-order or make-to-order strategy. It is not unusual for an organization to have different strategies for different product lines. A company may even have two strategies for one product. For example, automobile companies are primarily make-to- stock but do have|some assemble-to-order business. | _ Make-to-Stock- | The positioning sttategy of make-to-stock emtipliasizes immediate d ery of good quality, reasgnably priced, off-the-shelf, standard items. In th environ, ment a customer is not willing to tolerate a delayin receiving the product. Management is required to maintain a stock of finished goods. Often the stock 1 Escaneado con CamScannerChapter 1 1 Production and Inventory Management (PIM) Environments 3 Of finished goods held is quite large due to the need to provide a variety of ‘sizes, colors, and features. — ~ Assemble-to-Order Although some products are packaged or finished to order rather than assembled, for convenience, we will refer to this environment as assemble-to- order. The positioning strategy of assemble-to-order is to supply fety of high quality, competitively-priced, ducts from stand and subassemblies within a short bly lead time. The custom comp ‘ine what is meant by a short lead time. An automobile may be ordered with or without air conditioning. This requires a different lead time than a hamburger with or without lettuce. In assemble-to-order environments, options, subassemblies, and components are either produced or purchased to, “stock. By stocking a small supply of components and subassemblies, the manu- facturer can quickly assemble any one of an almost limitless number of possible configurations. The customer enjoys the benefit of some customization, yet has © a short wait for delivery. TRE Make- or Engineer-to- : "The positioning strategy of make-to-order is to provide the technical ability to produce specialty products, such as machine tools. In many situations the final design of the item is part of what is purchased. The final product is usually a combination of standard components and other components custom designed for the’customer. Combined material handling and manufacturing processing systems aré an example; special trucks for off-the-road work on utility lines and facilities are another. The manufacturer often put iter . pen must therefore be wil Te ; - PRODUCTION PROCESS DESIGNS . (PROCESS POSITIONING STRATEGY) There are three traditional designs that are useful in classifying production pro- cess environments. These designs are calle manufacturing, and fixed site mani ig aclassification of processes and their typical layouts and product positioning strategies. : The flow shop is sometimes called a product layout because the product always follows the same sequential steps of production. There are four types of flow: (1) continuous flow, (2) dedicated repetitive flow, (3) mixed-model repetitive flow, and (4) intermittent or batch flow. Escaneado con CamScannerChapter|1 Hl Production and Inventory Ms Figure 1-1 | Traditional Classification of Process Design | Typical Product Process Design. Typical Layout * Positioning i Line 7 Continuous j Product Emphasis Make-to Stock Dedicated Repetitive Assemble-to-Order Intermittent or Batch Mixed-Model Repetitive Job Shop Functional Make-to-Order | Process Emphasis ~ Fixed Site i Fixed Position Make-to-Order Project Emphasis Continuous Flow. | Continuous flow usually refers to the production or pro- cessing of fluids, wastes, powders, basic metals, and other bulk items. An ofl refinery that gradually refines crude oil into various petroleum products or a pipeline for water, pil, or natural gas are examples of continuous flow manu. facturing and distribution processes. Dedicated Repetitive Flow. Discrete parts such as shafts and connecting rods and discrete assemblies such as microcomputers may be produced by a repetitive flow process. The term dedicated implies that the production facility produces only one product, including product variations (such as color) that require no setup delay in the assembly or manufacturing process. A dedicated line is selected either when the demand for the item justifies the exclusive use of a line or when the manufacturing requirements are suffi. ciently different from any other item. In the latter case, excess capacity may exist and either the production rate is adjusted to match the demand rate or the line is periodigally idle. Characteristics of Continuous and Dedicated Repetitive Flow Processes. A flow process is designed specifically for the manufacture of a given product, Figure 1-2 depicts two small representative flow processes. The first flow pro- cesses to be desighed had linear configurations like that of Figure 1-2A. Re- cently, U-shaped processes like the one shown in Figure 1-2B have grown in popularity. The following are the general characteristics of continuous and dedicated repetitive flow ptocesses: | 1. Work mpves through the process at a fixed rate. 2. The processing and materials handling equipment is individually de. signed for the production of one product type. Escaneado con CamScannerFigure 1-2 4 A. Typical Flow Line ——H [HCH | WORK CENTER eH -Shaped Line OA C-O-OHO The production process generally is arranged to minimize materials handling. . Minor changes may be made in the line to incorporate product or pro- cess improvements. Most major changes are expensive. The line tends to be run (or to remain idle) for a relatively long time. . Inventory planning and control is driven by the rate of flow. The con- tinuous availability of materials and parts is critical. 7. Management usually desires balanced capacity of the different work stations along the line. . The rate of flow cannot be significantly changed without substantial modifications to the equipment or the number of personnel. . Fixed costs are high and variable costs are relatively low. A dedicated flow facility requires high volume to break even, but with sufficient volume can attain very low per unit costs. wo - ay oo 2 Batch Flow. The batch flow production process is functionally the same as the continuous or the repetitive, except that two or more products are manufac- tured in the same facility. Because of long setup times in the batch flow shop, manufacturing runs for each product typically last several hours or several days, An example of a continuous batch flow facility is a bottle filling plant that fills bottles with several varieties of liquid. During setup, lines must be cleaned to Escaneado con CamScannerChapter | 1 Production and Inventory Management (PIM) Environments avoid product contamination from the previous product. Sometimes bottle height changes, requiring adjustment of line or machine height. A batch repeti- tive flow manufacturer makes discrete parts; changing parts requires a setup. Often the products may differ only in color, but changing colors may require a long setup for painting. | The batch flow process: overlaps the line flow and job shop classifica- tions. Batch flow is used when the cost of a line Process is justified, even though the item is not produced continuously. Relatively low demand parts, assemblies, and nondiscrete items, such as pharmaceuticals, are often produced using intermittent or batch flow production. Quality control requirements, such as those present in the production of pharmaceuticals, frequently demand batch processing. In some cases, a given work space may be used for two or more single- model lines when each is not run continuously. These are batch lines consecu- tively occupying the same space, but they are not mixed-model lines. For example, in the assembly of certain carburetors for which there is a relatively low demand, a line may be operated until the required quantity (production lot) for a specific model is completed. The tools and assembly fixtures for that model are then placed in ap adjacent storage area and the different tools and equipment required for tht next scheduled model are used to set up the new line. Such lines are being replaced with mixed-model lines as Just-in-Time and zero inventory concepts are adopted by many organizations. Characteristics of Batch Flow. The following are characteristics of an inter- mittent or batch flow production process: 1, Equipment tends to be more general purpose, and thus less efficient, than continuous or dedicated repetitive production. 2. Equipment and personnel must be continually scheduled. 3. The equipment is eae and adjusted for the required temperature, pressure, and time prior to running a different item. Mixed-Model Repetitive Flow. Mixed-model repetitive flow processes are also used to manufacture {wo or more models. However, the changeover time between models is minimal (frequently zero), and the different models are intermixed on the same line. Hall (1983) describes such a mixed-model line with the following flow sequence, where A, B, C, and D represent different models: A-B-C-A-B-C-A-B-A-D. Thus, for every D produced, there would be four As, three Bs, and two Cs manufactured. Characteristics of Mixed-Model Repetitive Flow. The following characteristics typify a mixed-model repetitive flow line: 1. The equipment is general purpose in order to facilitate manufacture of several models. Escaneado con CamScannerFigure 1-3 | Order Flow Patterns in a Job Shop 4. Control requires defailed job and shop information, including process- ing sequence, order priority, time requirements of each job, status of Jobs in process, work center capacity, and capacity requirements of critical work centefs by time period. 5. Work center loads fitter greatly; that is, they have different percent- capacity utilization’. Critical capacity centers (bottlenecks) caused by relative scarcity of manpower or machinery must be determined. A change in Brod may cause the bottleneck to shift from one work center to another. 6. Resource availabilty, including materials, personnel, and tooling, must be coordinated with order planning. 7. The amount of work-in-process material tends to be high relative to that in a flow process due to the queues and long in-process times. 8. Using traditional scheduling techniques, the total time, from the be- ginning of the first operation to the end of the last, is relatively long compared to total/operation time. An order often spends 95 percent or more of its timd in the plant waiting to be moved to the next work center or waiting at a work center for processing. 9. Direct labor personnel are usually more highly trained and skilled than those in a flow rpeess operation. F Job shop operations, like intermittent (batch) flow operations, are char- acterized by batches. However, unlike intermittent flow processes where batches and batch size are determined by setup time constraints and demand volumes, the batch size of job shop|processes often is dictated by the size of a specific order. Thus, large and small batches of very similar, or in some cases identical products, are processed concurrently by the job shop. Large job shop pro¢esses have characteristics that are very similar to repetitive flow or intermittent batch flow operations. High setup costs are prorated over larger lots and specialization of labor and equipment are thus Escaneado con CamScannerpermitted. Alternatively, small job shop operations produce anywhere from ten to several hundred units per setup, and consequently they rely on highly flex- ible labor and lower-cost, flexible, general purpose equipment. A commercial printer is typical of a small job shop. Jobs are often quoted in terms of setup costs and then additional costs per unit, per hundred, or per thousand of production. Objectives of Job Shop Design Job shops permit a highly skilled worker, using general purpose equipment, to manufacture products to exacting specifications from blueprints. A job shop is chosen for: Making prototypes of new products. . Making small batches for test marketing or early in the production of a product. . Making unique or low-volume products such as machines, tools, and fixtures used to produce other products. . Ensuring quality whenever highly skilled labor is required to meet specifications. Examples include the production of mirrors for tele- scopes and the'production of other scientific instruments. . Providing the worker with the opportunity to make all of a part or component. Specialization of labor is efficient, but in some cases is not effective due to worker boredom. oo ye + ww The key identifying characteristic of fixed site (project) production is that the materials, tools, and personnel are brought to the location where the product is to be fabricated. This type of process is found in shipbuilding, construction, road building, and the final assembly of large, special-purpose trucks, turbines, aircraft, pressure vessels, and any other items that are difficult to move from work center to work center, Fixed site production is sometimes used in conjunction with other pro- cesses. After the product reaches a certain size, it is often more practical to keep it stationary and move the necessary components to its location. Characteristics of fixed site production include the following: 1, Direct labor personnel frequently are highly trained, very skillful, and independent. They work from blueprints and general instructions rather than detailed process sheets. 2. Order quantities are small and orders frequently hi features. 3. Tooling, personnel, materials, and other resources should be at the proper time to avoid nonproductive capacity. ave custom design available Escaneado con CamScannerChapter 1 El Production and Inventory Management (PIM) Environments Bb Figure 1-4 Product Positioning—Process Choice Focus Product Structure Low Volume/ Medium Volume/ High Volume/ High Volume/ High Variety - Medium Variety. Low Variety Standard Job Shop 1 Batch Flow Mixed-Model Repetitive 3 Dedicated Repetitive 4 Continuous E] Product/Market/Process Characteristics Group 1 Group 2 Group 3 Group 4 Group 5 Order Winner High quality. High quality High quality Competitive cost. Low cost - Variety High flexibility Some flexibility Some flexibility Low flexibility Standardized Implication High cost High cost Medium cost Some automation Automated Machinery General purpose General purpose General purpose Specific purpose Specific purpose Product Position Make-to-order Assemble-to-order Assemble-to-order Miake-to-stock — Make-to-stock ‘Modified from Hayes and Wheelwright Restoring Our Competitive Edge, Figure 4-7. Companies can define their exact position within the framework of the matrix, although they are constrained somewhat by the type of product and the state of product development. For example, auto assembly is generally con- sidered to be a repetitive process, but many luxury and sports automobiles are built in job shops—sometimes even in a semi-fixed position. Examples are Rolls Royce, some Volvo models, and the Studebaker Avanti. (Note that these exam- ples are low volume products with high customization, while the Ford Taurus is a high volume product with little customization.) The flexibility afforded by programmable logic controllers (micro- ? processors similar to ones that control a microwave oven) are changing the B nature of the volume-process choice relationship. The subject of flexible manufacturing systems and computer controlled production is discussed in Chapter 20. Escaneado con CamScannerR Chapter 1 El Production and Inventory Management (PIM) Environments DISTRIBUTION} PROCESS DESIGN In addition to selecting a manufacturing process, an organization also must choose distribution outlets and design the field support system. The distribution system choice affects several inventory and product support issues. In descend- ing order of product support, distribution outlets are turnkey, specialty shops, discount shops, and mail order. Each of the above may receive finished goods from a central or regional warehouse. Turnkey and mail-order operations also may obtain finished goods from an assemble-to-order manufacturer. ‘A turnkey operation delivers material to the user, sets it up, and ensures it is working properly. The supplier usually provides a service contract providing on-site maintenance for the user. Examples are computers, large duplicating equipment, and large machinery. A Specialty shop is a retailer of one type of item, such as men’s or women’s clothing, sporting goods, jewelry, and so on. The specialty shop pro- vides advice on selection and usage of items. Frequently, a specialty shop will customize an item, making the shop the last stage of the manufacturing pro- cess. The specialty shop may provide service under the product warranty. A Gliscount shop is a retailer carrying a very broad line of produets. Prices are lower than in specialty shops, but no advice or customization is provided. If the customer experiences problems with a product, the discount store may exchange the product, but usually warranty service must be arranged through the marjufacturer, not the retailer. For items that are small enough to be mailed or shipped by common carrier, |mail order is an increasingly popular alternative. By centralizing the point of contact with the customer, the mail-order house often is able to pro- vide a tnore knowledgeable sales clerk than is the discount shop. Exchange policies for reputable mail-order vendors are similar to those of discount houses, but the kustomer who must exchange a defective item encounters the delay and expens¢ of mailing the product back and awaiting replacement. 1 ‘ | _ TECHNOLOGICAL CHOICES Manufacturers constantly seek the product or process characteristicgahaagil give the iti ze. They need information on changing production process developments, product technology, information management systems, and product distribution methods. The computer is playing an increasing role at all levels of production and distribution process design. In Figure 1-5, the production and distribution process is presented as a system. Thi includes product design, supplier selection, product fabrication, oe spection, and distribution. The system must also provide for customer contact and for redesign of the product, the production process, and the distribution process based on continuing input from the customer, Escaneado con CamScannerfisuros roduction and Distribution Viewed as a System, wit “Computer Integrated Manufacturing Links Indicated ST lel ‘Service and Redesign " Material Process Design Receipt | . : Sv Production, Assembly, Inspection < suounstod 5 CAS&MP [=] [eo] [ow |. Modified from Deming, W-E., Out of the Gris, Figure 1 [cam CAL | eo1| r exe n aid customers (electronic data interchange, Wayne to assist in a ae. of products (compute AD) and of production processes (computer aided proces ning ;omputer can also assist in i id "user in the proper use of the product (CAD. these techniques are known as computer iterated manufacturing (CIM). The ultimate objective of CIM is to design the product on the computer (CAD) and pass the design electronically to a system that designs the pro- duction process (CAPP), including arrangements with suppliers (EDI). The Process planning system transfers files electronically to the scheduling and es materials planning system, which coordinates material production and purchase (CAS&MP). The process planning system may also transfer specific instruc- tions on how to make the Part to robots and to computer or direct numerically controlled machines (CAM). Contact with distributors, like that with vendors, is electronic (EDI). An emerging trend is the inclusion of computer aided in- struction (CAI) on the use of the product. This trend is expected to grow exponentially with the introduction of interactive compact disk technology, permitting the mixing of text, images, and sound on a compact disk that can be played on a CD player. Escaneado con CamScanner