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Chapter 14 Producing Materials and Services Learning Objectives

After reading this chapter, you should be able to do the following:


Discuss the strategic value-adding role operations plays in the supply chain. Explain the concept of a transformation process and its application to goods and services. Appreciate the tradeoffs and challenges involved in production operations. Understand the primary production strategies and types of planning. Discuss the primary assembly processes and production methods for goods creation. Describe the various production process layouts. Explain the role of productivity and quality metrics for improving operations performance. Know how information technology supports efficient production of goods and services.

Operations focus on the make/build portion of the supply chain. Production facilities must interact with supply chain functions. Operations create the outputs that are distributed through supply chain networks.

The Role of Production Operations in Supply Chain Management

Manufacturing and service production supplies a economic utility called form utility. An effective production operation is supported by and also supports the supply chain. Supply chain tradeoffs must be understood and made.

Production Process Functionality

No two processes are organized exactly alike or perform to the same level. Process functionality helps the success of an organization. Assemble-to-order methods tend to be more complex, be more labor intensive, and require longer processing time than the massproduction-oriented, make-to-stock operations.


Production Tradeoffs
Processes that can produce a range of products are said to have economies of scope. Low-volume production runs of a wide variety of products are required to meet changing customer demand. Tradeoffs between production processes for goods and the costs involved in manufacturing them must also be understood. Production and supply chain costs vary for make-to-stock, assemble-toorder, and build-to-order products.

Production Challenges
Intensified competition, more demanding customers, and relentless pressure for efficiency as well as adaptability Competitive pressures for many established manufacturers and service providers Customers demand for choice and rapidly changing tastes

Production Strategies
In the era of mass production, operations strategy focused on reduction, efficiency, and scale. The push-based strategy works well for supply chains that focus on the immediate delivery of off-the-shelf, low-cost, standardized goods. Lean production tries to have materials arrive at the needed location just in time for rapid processing and flow through the system. Lean production relies on pull-based systems to coordinate production and distribution with actual customer demand.

Production Strategies
Machine flexibility
general purpose machines and equipment staffed by cross-trained workers provide the ability to produce different types of products Routing flexibility  provides managers with a choice between machines for a parts next operation


activity be relocated to a contract manufacturer in another country provides companies with the ability to replace planning and replanning with execution based on real-time demand

Adaptive manufacturing

Production Planning
Three planning timeframes:

Long-range plans
covering a year or more, focus on major decisions regarding capacity and aggregate production plans

Medium-range plans
span 6 to 18 months and involve tactical decisions regarding employment levels and similar issues

Short-range plans
ranging from a few days to a few weeks

Production Planning
Resource requirements planning (RRP)

long-run, macro-level planning tool checks the feasibility of the master production schedule checks the feasibility of the materials requirement plan long-range materials plan that translates annual business plans, marketing plans into production plan medium-range plan that is more detailed than the APP

Rough-cut capacity plan (RCCP)

Capacity requirements planning (CRP)

Aggregate production plan (APP)

Master production schedule (MPS)

Assembly Processes
(MTS), make to order (ATO), assemble-to-order (BTO), build-to-order (ETO), engineer-to-order

Production Process Layout

facility layout

involves the arrangement of machines, storage areas, and other resources within the four walls of a manufacturing or an assembly facility.

successful layout is one that does the following:


Reduces bottlenecks in moving people or materials Minimizes materials-handling costs Reduces hazards to personnel Utilizes labor efficiently Increases morale and ease of supervision Utilizes available space effectively and efficiently Provides flexibility Facilitates coordination and face-to-face communication

Production Process Layouts

Project layout

fixed location layout where the product remains in place for the duration of production process-focused layout that groups together similar equipment or functions process-focused layout that dedicates production areas to a narrow range of products that are similar in processing requirements product-focused layout in which machines and workers are arranged according to the progressive sequence of operations similar to assembly lines, with product flowing through a predetermined sequence of stops.


Manufacturing cell

Assembly line

Continuous process facilities

design issues can affect labor and facility efficiency can provide another level of product differentiation design impacts ability to use space and equipment ease of handling during materials handling and transportation protecting the goods in the package

Production Metrics
use of measurements and key performance indicators (KPIs)

Using KPIs that are too narrow Encouraging wrong outcomes Focusing on issues that are not key priorities

should be properly aligned with corporate objectives

Production Metrics
Total cost

all money spent on manufacturing must be summarized and the total compared to the previous period

Total Cycle Time

total cycle time is a measure of manufacturing performance that is calculated by studying major purchased components and determining the total days on hand of each one is the percentage of customer orders shipped when the customer requested them to be shipped

Delivery performance

Production Metrics

This may vary by company but it must focus on quality from the perspective of the customer. The standard metrics of accident/incident frequency, severity, and cost are important to monitor, with continuous improvement (i.e., reduction) as the goal.


Manufacturing Execution Systems (MES)

central software used to monitor and control production operations linked to other enterprise tools like ERP systems, product life cycle management tools, and scheduling and planning systems


The key concept from this chapter is the critical and codependent link between production operations and logistics. Just as a heart and arteries need to work together to move blood through your circulatory system, production and logistics must work in concert to move product through the supply chain. For their part, production managers must coordinate demand information, inputs, and resources to transform them into outputs (products and materials) that are desired by customers. The faster and more flexible the transformation processes, the more responsive the production operation can be to changing conditions and disruptions. This, in turn, makes the supply chain more dynamic and competitive. Additional topics from the chapter include the following: Production operations include all activities and processes involved in changing the composition of a good or servicecomponent fabrication, product assembly, and service request executionfor the purpose of creating form utility. Numerous tradeoffs must be made regarding production: volume versus variety, responsiveness or efficiency, make or outsource, and focusing on a limited number of competitive dimensions. Intensified competition, more demanding customers, and relentless pressure for efficiency as well as adaptability are driving significant changes across many manufacturing industry settings.

Summary (cont.)
There have been significant development and shifts in production strategy. Organizations have advanced from forecast-driven mass production to demanddriven lean, flexible, and adaptive approaches Capacity planning and materials planning are used to balance inputs, capacity (resources), and outputs so that customer demand can be fulfilled without creating waste. Most manufacturers use a combination of four production methodsmake-tostock, assemble-to-order, build-to-order, and engineer-to-orderto satisfy demand for their products. Facility layout involves the arrangement of machines, storage areas, and other resources within the four walls of a manufacturing or an assembly facility. Facility layout is influenced by the product characteristics, production strategy, and assembly process employed by the organization.

Summary (cont.)
Packaging plays important roles in the smooth transfer of finished goods from the plant to the distribution center and customer locations. Production KPIs must be linked to corporate goals and objectives, customer requirements, and overall performance of the production operation. Relevant production KPIs address total cost, total cycle time, delivery performance, quality, and safety. Manufacturing execution systems software solutions improve an organizations ability to manage production operations and make them more responsive to disruptions, challenges, and changing marketplace conditions.