1 PRODUCTION AND OPERATIONS MANAGEMENT

2 OBJECTIVES Introduction to Production Function and Operations Management  Mass Production Approach  Toyota Production System (TPS) Approach  Supply Chain Management

3 PRODUCTION versus MANUFACTURING  Production is a Broader Term that Spans both Manufacturing and Services Functions  Production is the Application of Resources, People and Machinery, to Convert Inputs into Finished Goods and Services

4 MASS PRODUCTION Mass Production: Makes Outputs available in Large Quantities at Lower Unit Costs than Individually- Crafted Items Characteristics of Mass Production  Labor Specialization  Mechanization  Standardization

5 ASSEMBLY LINES Assembly Line first Introduced by Eli Whitney (Cotton Gin Inventor) to build Muskets for the US Government In 1799 Used Ideas of Specialized Labor and Engineering Standards (Tolerances) to produce Assemblies from Parts in Repeatable Manner

6 HENRY FORD Introduced Moving Assembly Line: Dramatically Reduced Manufacturing Costs While Delivering Consistent, Low-Priced Product Factory based on Chicago Meat Cutting Plants

7 FORD MODEL “T” First Produced: October 1908 By 1927, 15,000,000 Produced Any Color so long as it’s Black…

8 ASSEMBLY LINE BENEFITS  Initially, took 14 hours to Assemble Model T - Mass Production reduced Time to 1 Hour and 33 Minutes  Model T’s Price dropped from $1,000 in 1908 to $360 in 1916  Result was Ford becoming Dominant Automobile Manufacturer and Assembly Line Method as Dominant Production Approach

9 FORD ASSEMBLY LINES Assembly Line pulled by Ropes Magneto Assembly

10 MASS PRODUCTION MODEL “T” – Machine that Changed the World  1914: Ford produced 308,162 cars, more than all 299 other auto manufacturers combined  1927: Automobile Produced every 24 seconds  Higher volumes → Lower cost → Lower Prices →Increased Sales → Higher Volumes

11 MASS PRODUCTION “PUSH” Strategy – Driven by Inputs and Objectives Control of Raw Materials and Labor plus Profit Goals = Production Rate separate from Customer Demands and Preferences Performance measured by Budget Variances and Quantitative Results (Defects or Unit Costs per Day, Week or Month), not Quality Standards

12 MASS PRODUCTION  Low Product Variety; Small Orders Not Feasible  Specialized Machinery and Centralized Manufacturing  “Economies of Scale” – High-Speed Sequential Production  Development Costs Spread Over Large Volume: Low Cost per Unit Produced  Low-Skill/Low-Wage Work Force  Large Advertising and Marketing Budgets

13 FORD WORKING CONDITIONS Monotony of Assembly Line Work: 300% Turnover  $2 per Day and a 9-Hour Shift Ford’s Response to Working Conditions Dilemma  Increase Pay to $5 per Day and Reduce Shifts from 9 Hours to 8 Hours “The Chain System you have is a Slave Driver. My God, Mr. Ford! My Husband has come Home and Thrown Himself Down and won’t Eat his Supper, He’s so done out. Can’t it be Remedied? That $5-a- day is a Blessing; a Bigger One than you Know. But, Oh, They Earn It!” - Wife of Ford Assembly Line Worker

14 MASS PRODUCTION Flaws of Mass Production Approach  Production Levels cannot Stop or Slow: Defects resolved outside Production (Added Costs of Rework)  Long Changeover Times limits Product Variety  Erratic Finished Products Inventory Levels  Incentives and 0% Financing

15 MASS PRODUCTION Market Orientation Flaw

16 TOYOTA’S ORIGINS 1902 Modification: Loom Stopped Automatically if Thread Broke or Spool Empty - Signal for Attention Result: No Waste from Defective Work and Lower Production Costs Toyoda Automated Loom Works

17 TOYOTA’S ORIGINS During WWII, Toyoda became Toyota and manufactured Motorcycles and Delivery Trucks After WWII, Japanese Industry needed to re-build

18 TOYOTA’S ORIGINS Found Mass Production Principles not Applicable:  Scale of Japanese Markets  Desire for Product Variety  Unable to Afford Resources and Inventories 1956 – Taiichi Ohno went to US to study Ford’s Manufacturing Facilities

19 TOYOTA’S ORIGINS Discovered Production and Operation Methods that  Were Linked to Customer Actions: Inventories Replenished by Sales (“PULL” Strategy)  Delivered Product Variety and Scale  Minimized Waste Before returning to Japan, Ohno went to an American Grocery Store

20 TOYOTA’S ORIGINS Toyota Exports its First Car: The Forgettable “Crown” Under-powered and Unstable at Freeway speeds, Production is stopped in 1959

21 TOYOTA PRODUCTION SYSTEM In 1961, Toyota adopts “Systems Perspective”  KAIZEN – Continuous Improvement Attitude that Minimizes Waste and Emphasizes High Quality Processes are analyzed to eliminate flaws rather than fixing defective products  WASTE – Comprehensive View that includes Time, Resources and Materials  Over-Production  Time Spent Waiting  Unnecessary Movements of Items

22 TOYOTA PRODUCTION SYSTEM Waste is anything other than the minimum amount of equipment, materials, parts, space, and workers’ time which are absolutely essential to add value to the product. - Shoichiro Toyoda President, Toyota Motor Co.

23 TOYOTA PRODUCTION SYSTEM KANBAN KANBAN - Downstream Demand drives Upstream Activity (“Pull Strategy”) Orders flow “Up” System, not from Top-down Only what is Needed is Ordered and Produced

24 TOYOTA PRODUCTION SYSTEM ANDON ANDON – Work Stops when Problem Encountered Counter-measures taken to Cure Cause, Not re-work Defective Result. Authority delegated to Production Team Production and Problem-solving Functions combined. No Special Trouble-shooting Teams

25 TOYOTA PRODUCTION SYSTEM Result of TPS is “Just-in-Time” Inventory System  Comes from System’s Operation, Not a Requirement of It: Element of “Waste” Management Philosophy  JIT relies on Supplier Relationships that Integrate Inventory Arrivals and Production Needs  JIT depends on Mutual Commitment of Toyota Loyalty and Supplier Performance

26 TOYOTA PRODUCTION SYSTEM Why Hasn’t TPS Been Universally Adopted?  Equipment Transition Costs: Short Turnover Times (High Variety) combined with High Quality  Different Management Paradigm: Empower Assembly Line Workers to Stop Production and Order Process- correcting Counter-measures

27  World’s Second Largest Manufacturer of Automobiles  About 240,000 Employees  Produces a Vehicle about every Six Seconds  Consistently Profitable GM: $1.1 Billion Quarter Loss

28 SUPPLY CHAIN MANAGEMENT  A supply chain is a system through which organizations deliver their products and services to their customers." (Poirier and Reiter, 1996)  "A supply chain is an integrated process wherein raw materials are manufactured into final products, then delivered to customers (via distribution, retail, or both)." (Benita, 1999)

29 SUPPLY CHAIN MANAGEMENT

30 SUPPLY CHAIN MANAGEMENT