1-1 ISE 216/ IE 222 PRODUCTION SYSTEMS ANALYSIS INTRODUCTION

1-2 What is Production and Operations Management? Planning and control of systems that use facilities to transform inputs into outputs (goods and services). Transformation InputOutput Goods & Services Resources Materials Labor Facilities Information Energy Time Manufacturing Transportation Retailing Warehousing

1-3 Example SystemInputFacilitiesTransformation function Output Automobile factory Raw materials Tools, equipment, workers Fabrication and assembly of cars Cars UniversityHigh school graduates Teachers, books, classrooms Importing knowledge and skills Educated individuals Department store ShoppersDisplays, stock of goods, sales clerks Attract shoppers and fill orders Sales to satisfied customers

1-4 Manufacturing sector vs. Service sector ManufacturingService Durable goodIntangible product (mostly perishable) Can be inventoriedNo inventories Quality measurableQuality difficult to measure Low customer contactHigh customer contact Capital intensiveLabour intensive

1-5 Chapter 1. Strategy and Competition

1-6 Topic Areas in Operations Analysis Forecasting Forecasting Aggregate Planning Aggregate Planning Inventory Control: Deterministic Environments Inventory Control: Deterministic Environments Inventory Control: Stochastic Environments Inventory Control: Stochastic Environments Supply Chain Management Supply Chain Management Production Control Systems: MRP and JIT Production Control Systems: MRP and JIT Operations Scheduling Operations Scheduling Project Scheduling Project Scheduling Facilities Planning Facilities Planning Quality and Assurance Quality and Assurance Maintenance and Reliability Maintenance and Reliability

1-7 Operations (product design, manufacturing, product quality, process efficiency, customer service, inventory management,...) Finance Marketing Functional Areas of the Firm

1-8 Decision Horizons for Operations Strategy 1. Long Term Locating and Sizing New Facilities Locating and Sizing New Facilities Finding New Markets for Products Finding New Markets for Products Mission Statement: meeting quality objectives Mission Statement: meeting quality objectives 2. Intermediate Term Forecasting Product Demand Forecasting Product Demand Determining Manpower Needs Determining Manpower Needs Setting Channels of Distribution Setting Channels of Distribution Equipment Purchases and Maintenance Equipment Purchases and Maintenance 3. Short Term Purchasing Purchasing Shift Scheduling Shift Scheduling Inventory Control Inventory Control

1-9 Operations Strategy “… is about getting the work done quickly, efficiently, without error, and at low cost.” Operations and Supply Management – The Core, Jacobs & Chase

1-10 Operations Strategy ExampleStrategy Process Customer Needs Corporate Strategy Operations Strategy Decisions on Processes and Infrastructure More Product Increase Org. Size Increase Production Capacity Build New Factory

1-11 History of POM (Production Operations Management) Industrial Revolution Industrial Revolution Factories tended to be small. Boss had total control. Little regard for workers safety or workers rights. Factories tended to be small. Boss had total control. Little regard for workers safety or workers rights. Production Manager Position Production Manager Position Frederick Taylor champions the idea of “scientific management”. Frederick Taylor champions the idea of “scientific management”. As complexity grows specializations take hold. As complexity grows specializations take hold. Inventory Control Manager Inventory Control Manager Purchasing Manager Purchasing Manager Scheduling Supervisor Scheduling Supervisor Quality Control Manager Quality Control Manager

1-12 Global Competition Global competition is heating up to an unprecedented degree. It appears that several factors favor the success of some industries in some countries: ]Germany: printing presses, luxury cars, chemicals ]Switzerland: pharmaceuticals, chocolate ]Sweden: heavy trucks, mining equipment ]United States: personal computers, software, entertainment ]Japan: automobiles, consumer electronics

1-13 Porter’s Thesis Famed management guru, Michael Porter, has developed a theory to explain the determinants of national competitive advantage. These include: (Land, Labor, Capital, etc.) Factor Conditions (Land, Labor, Capital, etc.) Demand Conditions (local marketplace may be more sophisticated/demanding than world marketplace) –Japan in electronics Related and Supporting Industries – Italy in footwear Firm Strategy, structure, rivalry (e.g.: Germans are strong technically, Italian family structure, Japanese management methods) (e.g.: Germans are strong technically, Italian family structure, Japanese management methods)

1-14 Time-Based Competition Due to Blackburn(1991). Due to Blackburn(1991). Being not only the first to market but the first to volume producer as well gives a firm a decided advantage. Being not only the first to market but the first to volume producer as well gives a firm a decided advantage.

1-15 How Do Firms Differentiate Themselves from Competitors? Low Cost Leaders: Low Cost Leaders: WalMart and Costco in Retailing WalMart and Costco in Retailing Korean automakers (Hyundai, Kia, etc.) Korean automakers (Hyundai, Kia, etc.) E-machines personal computers E-machines personal computers High Quality (and price) Leaders: High Quality (and price) Leaders: Mercedes Benz automobiles Mercedes Benz automobiles Rolex Watches Rolex Watches (some firms do both: Chevrolet and Cadillac) (some firms do both: Chevrolet and Cadillac)

1-16 Along What Other Dimensions Do Firms Compete? Delivery Speed, Delivery Reliability Delivery Speed, Delivery Reliability Federal Express, United Parcel Service Federal Express, United Parcel Service Flexibility Flexibility Solectron: provides manufacturing services to many different companies. Solectron: provides manufacturing services to many different companies. Service Service Nordstrom bases its reputation on providing a high quality of service to customers Nordstrom bases its reputation on providing a high quality of service to customers

1-17 Business Process Re-engineering The process of taking a cold hard look at the way that things are done. Term coined by Hammer and Champy in their 1993 book. “Business process reengineering (BPR) is the analysis and redesign of workflows within and between enterprises in order to optimize end-to- end processes and automate non-value-added tasks.”

1-18 Business Process Re-engineering Classic Example: IBM Credit Corporation. The approval process was taking from 6 days to 2 weeks. It had been broken down to a series of multiple steps, each having substantial delays. The process was re-engineered so that a single specialist would handle a request from beginning to end. The result was that turnaround time was slashed to an average of 4 hours!

1-19Just-In-Time JIT is a production control system that grew out of Toyota’s kanban system. It is a philosophy of production control (also known as lean production) that attempts to reduce inventories to an absolute minimum. It has become pretty much a standard way of thinking in many industries (especially the automobile.) JIT will be discussed in ISE 315.

1-20 Product and Production Product: an item that satisfies the market’s/costumer’s need Production: the act of making products Manufacturing Manufacturing Service Service I-20

1-21 Importance of manufacturing Manufacturing in the developed countries has declined, but it is still crucial Manufacturing in the developed countries has declined, but it is still crucial Certain industries relate to national security Certain industries relate to national security Employment opportunity Employment opportunity Manufacturing firms are lifeblood for financial service and consulting companies Manufacturing firms are lifeblood for financial service and consulting companies Harbor for Innovation Harbor for Innovation

1-22 Product Life Cycle The life cycle may be short (clothing) or long (commercial aircraft). Some generalizations: Products go through growth, maturity and decline phases. Product profits follow a growth, stabilization and decline pattern. Products need a different marketing, production planning, inventory management and financial strategy at each stage.

1-23 The Product & Process Life-Cycle Curves Manufacturing Cost

1-24 PROCESS FLOW STRUCTURES Job shop Production of small batches of a large number of different products. Airplane manufacturers, Commercial printing firms. Airplane manufacturers, Commercial printing firms. Batch shop Production of a relatively stable line of products typically in batches. Electronic devices, Bakery. Electronic devices, Bakery. Assembly Line Production of discrete parts moving from workstation to workstation at a controlled rate. Automobile manufacturer, home electronics manufacturer. Automobile manufacturer, home electronics manufacturer. Continuous Flow Conversion or further processing of undifferentiated materials. Petroleum refinery, Beverage factory Petroleum refinery, Beverage factory

1-25 Continuous flow -> <- Job Shop

1-26 Modern Times (1936) Assembly line Assembly line By Charlie Chaplin By Charlie Chaplin

1-27 Continuous Flow Assembly Line Batch shop Job Shop Low Volume, One of a Kind Multiple Products, Low Volume Few Major Products, Higher Volume High Volume, High Standard- ization Commercial Printer French Restaurant Heavy Equipment Automobile Assembly Burger King Sugar Refinery Flexibility (High) Unit Cost (High) Flexibility (Low) Unit Cost (Low) Product Process Matrix

1-28 CharacteristicJob ShopAssembly Line ProductLarge variety & low volume Low variety & high volume Equipment type & layout General purpose by function Specialized equipment by use in production line FlexibilityHighRelatively low Material handlingMobileConveyor, relatively fixed Worker skillsHighLow Job Shop vs. Assembly Line

1-29 CharacteristicJob ShopAssembly Line Product documentation High: drawings & work orders Low: due to standard items Work loadVariableStable CostsHigh unit cost job cost system High overhead cost (fixed cost) product cost sys. ForecastingProduct familyIndividual item Job Shop vs. Assembly Line

1-30 Capacity Strategy Capacity: the number of units that the plant can produce in a given time. Amount. When adding capacity, what is the optimal amount to add? Amount. When adding capacity, what is the optimal amount to add? Too little means that more capacity will have to be added shortly afterwards. Too little means that more capacity will have to be added shortly afterwards. Too much means that capital will be wasted. Too much means that capital will be wasted. Timing. What is the optimal time between adding new capacity? Timing. What is the optimal time between adding new capacity? Type. Level of flexibility, automation, layout, process, level of customization, outsourcing, etc. Type. Level of flexibility, automation, layout, process, level of customization, outsourcing, etc.

1-31 Capacity Strategy Issues in capacity expansion Finite plant lifetime Finite plant lifetime Demand patterns Demand patterns Technological developments Technological developments Government regulations Government regulations Overhead costs Overhead costs Tax incentives Tax incentives

1-32 Break-even Curves for the Make or Buy Problem Cost to Buy = c 1 x Cost to make=K+c 2 x K Break-even quantity

1-33 Three Approaches to Capacity Strategy Policy A: Try not to run short. Here capacity must lead demand, so on average there will be excess capacity. Policy A: Try not to run short. Here capacity must lead demand, so on average there will be excess capacity. Policy B: Build to forecast. Capacity additions should be timed so that the firm has excess capacity half the time and is short half the time. Policy B: Build to forecast. Capacity additions should be timed so that the firm has excess capacity half the time and is short half the time. Policy C: Maximize capacity utilization. Capacity additions lag demand, so that average demand is never met. Policy C: Maximize capacity utilization. Capacity additions lag demand, so that average demand is never met.

1-34 Capacity Leading and Lagging Demand