Business Policy & Strategy: Chapter Nine Production Murdick, Moor, Babson & Tomlinson Sixth Edition, 2000

Production Vs. Productivity Production is the transformation of organizational resources into products. Productivity is how efficient you are at transforming the resources.

Strategies for increasing Production DETERMINE IF LONG TERM or SHORT TERM DEMAND EXISTS Hire more qualified employees (if long term); add shifts for short term increases or hire temporary workers Training Make products easier to assemble Upgrade equipment/build plants Automation and robotics

Production/Operations Management Selecting, designing, operating, controlling and updating of production systems. Capacity, location, product, process, layout, and human resources. JIT inventory controls, maintenance, costs, materials, master scheduling and aggregate planning.

THE BIG IDEA To get out the right quantity of the product at the right time at the lowest cost. For global firms, economies of scale is a primary factor locating near low cost labor, or raw materials.

Economies of Scale If you increase the volume produced, the fixed costs which are constant are spread over a greater number of units, therefore the total cost per unit drops as you remember that TC=FC+VC. With a lower cost per unit, firms can increase market share by lowering price or increase profits by matching other prices!

Policies Plant location, additions, renovations Equipment purchases Purchasing policies Transportation costs of raw materials and finished goods should be analyzed Inventory policy for finished goods Quality levels to be maintained

Typical Production Problems Absenteeism & Turnover Bottlenecks Floor plan Equipment Sales fluctuate Quality

Typical Production Problems Sales dept. requesting immediate production on items with long lead time Lack of time-studies and methods Special Orders

Five Major Systems of Analysis Manufacturing Organization Production Planning Production Operation Production Control Relationship with Other Components

Manufacturing Organization

Production Planning and Control

Types of Production Product based- equipment and people are fixed according to operations (old automotive plants) Process based- goods in process transported to proper department.(Employee and machine grouping -petroleum refining) Material based- materials do not move. People and machines brought to work in progress. (e.g. Shaft Nursery Lawn care)

Checklist for Analysis Demand Plant Equipment Layout Procurement H.R. Methods Maintenance Planning/Scheduling Assigning Work Inventory Control Housekeeping

Demand Constant, seasonal, irregular Sales forecasts- are they constantly too high or too low? Production Vs. Sales- is production department second guessing the sales department?

Plant Centralized- to suppliers, market, transportation etc.? Expansion- is there room? Storage- appropriate? Conditions- security, roads, waste etc. Climate- general livability Underutilized? Adequate- in another five years?

Equipment Specifications Maintenance- periodic, breakdown,continuous Size of maintenance crew/downtime Safety equipped OSHA requirements

Layout Minimize handling Space utilization efficiency (SUE) Aisle space problems Storage space problems Safety problems Compliance with laws Temperature, light, noise, facilities

Procurement Minimize inventory levels-holding costs, carrying costs, shortage costs and quantity discounts Lead-time constant and short Control of quality and quantity of incoming supplies Purchase Order Requisition System

Human Resource Management Clearly stated policies- hiring, layoff, disciplinary action, promotions Turnover rate All employees treated equally Incentive plans

Work Methods and Measurement Methods developed for each operation Type of measurement employed Union attitude towards methods of measurement

Maintenance/Replacement Policy for equipment maintenance Records maintained Balanced against downtime

Production Planning & Scheduling Formal system in place Rush/Priority Orders Smooth Demand Eliminate Bottlenecks Maintain High Productivity

Assigning/Dispatching Work Assigned in accordance with availability Priorities Indicated Formal system of communication with forepersons

Controlling Inventories Economic order EOQ Economic runs- just the right amount and time High cost items Consumer returns excessive? Incentive for cost reductions Service level in- house or outsourced?

Housekeeping Painted regularly Windows and floor cleaned daily Warning signs clear Roads and parking maintained