Production

Management
Introduction to Manufacturing
and Production Management

Why is manufacturing
important?

Wealth

What is it?

The

wealth of a country is measured

by its output of goods and services,
this is known as gross national product

Where does it come from?

Adding

value
Value comes from the transformation of
resources into useful goods.
Between the extraction of resources to the
provision of finished goods to customers there are
a number of stages in which value is added and
wealth is created.

Transformation and Value

At every stage there is a transformation taking place
Value is being added by transforming resources into
increasingly useful goods and services

Value and Wealth

Cost

Margin = Price

Plan the process

Manage the process
Key to maximising value: Plan and control the flow of materials
Source: Porter, M. (1985) Competitive Advantage: Creating and Sustaining Superior Performance.
The Free Press: New York

Social function or profit?

Decisions based on
profit only give raise to
ethical issues

Click on images

Social function or profit?

Operations

For manufactured products, as well as for

services it holds true that:
There

is a transformation of resources into products

or services
There are performance standards
Products and services are designed to satisfy specific
needs
There are processes and work schedules
All these things take place in facilities in which it is
necessary to coordinate human and technological
resources

Operations management

Operations management deals with the

organization and control of all the activities

that add value in the form of products and

services through transformation

processes.

The purpose of production management

To ensure business profitability

by satisfying demand with the right products, at

the time required, with quality,

and as economically as possible by organizing

the use of production factors

Processes
Machinery
Equipment
Labour skills
Material

What is the
environment in which
manufacturing takes
place like?

The Operating Environment

Government regulations
Economy
Global competition
Customer expectations
Quality requirements
Time-based competition

The Operating Environment

Government regulations
Safety

standards
Regulations

Economy
Affects

demand
Occurrence of shortages and surpluses

Global competition
Reduced

costs of transportation and increasing speed

of communications
Increase in number and quality of competitors
Cheap labor in developing countries

The Operating Environment

Customer demands
Lower

prices
Improved Quality
Reduced lead times
Improved pre-sales and after-sale service
Product volume and flexibility

The Operating Environment

Quality

Order

Competitive characteristics needed to be a viable competitor

Order

Qualifiers
Winners

Competitive characteristics that cause customers to choose a

firms products and services

Order qualifiers and winners drive the manufacturing strategy.

Order qualifiers and winners are not static, and keep changing over
time.

The Operating Environment

Time based competition

Shortening

life cycles
Customers are increasingly time-sensitive
Customers drive for reduced inventories
Market volatilitys impact on forecasts
Industrial buyers tend to look for the right
quality in the shortest lead time
For more information on this topic see Christopher, M. (1998), Logistics and Supply
Chain Management: Strategies for Reducing Cost and Improving Service, 2nd Ed.,
Prentice Hall

The Operating Environment

Can you think of any other factors affecting
manufacturing?

Production
Management
Introduction to Manufacturing
and Production Management

What is the internal

operating environment
like?

The Internal Environment

Business Objectives

Business Strategy

Manufacturing Strategy

Manufacturing Process

Organizational Chart

Functional Conflict

The Internal Environment

Business Objectives
Income = Revenue - Expense

Need to increase income with:

Best customer service

Lowest production costs
Lowest inventory investment
Lowest distribution costs

The Internal Environment

Business Strategy

In

order to stay in business a company must be market

oriented and meet customers expectations.

Operations

must be organized to meet the needs of the

marketplace. How to do it?

Right quality

Right quantity

Right time

Right place

Right price

The Internal Environment

Product type / Manufacturing Strategy

Engineer-to-Order
Make-to-Order
Assemble-to-Order
Make-to-Stock

The Internal Environment

Engineer-to-Order
Manufacturer

does not start until the order is

received
Custom

designs

Unique

products

Long

lead time

Inventory

purchased after order is received

The Internal Environment

Make-to-Order
Manufacturer

does not start until the order is

received
Often

uses standard components

Little

design time

Lead

time is reduced

Inventory

held as raw materials

The Internal Environment

Assemble-to-Order
Manufacturer

inventories standard
components, some of which have been
manufactured

No

design time required

Assembly
Shorter

only required

lead time

Inventory

held as standard components

The Internal Environment

Make-to-Stock
Manufacturer

produces the goods in

anticipation of customer demand
Little customer involvement with design

Shortest

lead time
Inventory held as finished goods

The Internal Environment

Manufacturing strategy and lead time

Arnold, Chapman & Clive (2008) Introduction to Materials Management, 6th ed.,Pearson Education, p. 4

The Internal Environment

Manufacturing
Workstations

process: Flow

in sequence needed to make

product
Work flows at a nearly constant rate
Little work-in-process inventory

Flow Process
Arnold, Chapman & Clive (2008) Introduction to Materials Management, 6th ed.,Pearson Education, p. 4

The Internal Environment

Manufacturing process: Flow (product layout)

Limited

range of similar products

Dedicated workstations
Sufficient demand
Capital intensive and high
equipment utilization

Cars are made using a discrete flow process

A variation of this type of process is called continuous

Little

work-in-process inventory
Short throughput and manufacturing lead times
Lower unit cost (economies of scale)

The Internal Environment

Manufacturing

process:Intermittent

Intermittent Process
Arnold, Chapman & Clive (2008) Introduction to Materials Management, 6th ed.,Pearson Education, p. 4

The Internal Environment

Manufacturing process: Intermittent (process

layout)

Intermittent lot production

Many different parts processed at workstations
General-purpose machinery
Similar types of skills and equipment in each department
Work moves only to required stations

Here is an example of job shop

Here is another variation called batch process

Relatively easy to change product or volume

Complex and expensive production and inventory control
High work-in-process inventory levels
Longer lead times

The Internal Environment

Manufacturing process: Project

Used

for large, complex projects

Project

remains in one location for assembly

Avoids

cost of moving the product

See

how a Boeing 777 is made

Production process

Flow vs Intermittent
Flow

Capital cost
Production volume
Flexibility
Annual setup cost
Run cost
Work-in-process inventory
Production and inventory control cost
Lead time

Intermittent

The Internal Environment

Manufacturing as part of a company

Of

course, organizational charts vary from company to

company

The Internal Environment

Function

Objetives

Customer
Service

Production
changes

Inventories

High sales

Marketing

High product variety

Low production cost

Production

High levels of production

Long production runs

Low investment and costs

Finance

Low fixed costs

Low inventories

Conflicting objetives
Source: Arnold, y Clive Chapman (2008) Introducion to Materials Management, 6 ed.
Pearson Education, p. 10

Traditional Silo Attitude

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Frequently, these functions dont talk much to each other to

coordinate or to agree on common objectives

They may be competing to achieve their own goals, even

at the expense of the others

Silos: from a material flow perspective

When there is a lack of coordination inventories

tend to accumulate between functions
Purchasing

Materials
control

Production

Sales

This situation frequently results in:

Badly

coordinated flow
High inventory costs
Low levels of customer service

Distribution

Externally, adversarial relationships

Externally, relations tend to be transactional

The main factor to take into consideration is price

Other factors such as quality and service are secondary
A buyer looks for a supplier that offers a lower price

Conflict takes place over margin

Price = Cost + Margin

Suppliers want to sell at a high price

Buyers want to buy at low price
Usually, the most powerful company extracts part of its
counterparts margin

How can we visualize the

flow of materials to
understand it and manage
the value adding process
in a better way?

Integration

The idea of integration started to promote the efforts of many

organizations to change the way they worked inside and outside the
company
Integration takes place over several stages:

Stage1:
Complete Independence

Each function works on its own in complete isolation

from the other functions

Stage 2:
Functional Integration

The company recognizes the need for at least a

limited level of coordination between adjacent
functions

Stage 3:
Internal Integration

The organization establishes a planning and execution

framework to work from beginning to end

Stage 4:
External Integration

Represents true integration as the concept of linking

and coordination extends to customers and suppliers

Integration
Stage1: Complete Independence
Purchasing

Materials
control

Production

Sales

Manufacturing

Distribution

Distribution

Stage 2: Functional Integration

Materials
Management

Management

Stage 3: Internal Integration

Materials
Management

Manufacturing

Management

Distribution

Company

Customers

Stage 4: External Integration

Suppliers

Source: Graham C. Stevens, (1989) "Integrating the Supply Chain",

International Journal of Physical Distribution & Logistics Management, Vol. 19 Iss: 8, pp.3 - 8

The concept of Supply Chain

The supply chain is the network of

organizations that are involved, through

upstream and downstream linkages, in the
different processes and activities that
produce value in the hands of the
ultimate customer
Christopher,1998

Christopher, (1998) Logistics and Supply Chain Management, 2th ed.,Prentice Hall, p.15

The concept of Supply Chain

Includes all activities and processes to supply a

product or service to the customer

Externally:

Links
Has

many companies

a number of supplier/customer relationships

May

contain intermediaries such as: wholesalers,

warehouses and retailers

Products
Design

and services flow from suppliers to customers

and demand information flows from customers

to suppliers

The concept of Supply Chain

Flow of information and funds ($)
Distribution
Center

Suppliers

Retailers

Factory
Warehouse

Customer

Suppliers supplier

Flow of materials and credit

1-1

A typical depiction of a supply chain

The concept of Supply Chain

Supply-Production-Distribution System
Arnold, Chapman & Clive (2008) Introduction to Materials Management, 6th ed.,Pearson Education, p. 5

Supply Chain Management

Christopher (1998) defines Supply Chain

Management as:

The management of upstream and

downstream relationships with suppliers

and customers to deliver superior
customer value at less cost to the supply
chain as a whole

Christopher, (1998), Logistics and Supply Chain Management, 2th ed.,Prentice Hall, p.18

Supply Chain Management

Three principles of supply chain

management:

Customer
Systems

focus

thinking

Collaboration

The role of Supply Chain Management

Planning and controlling the flow of

materials

Objectives:

Provide

the required level

of customer service
Optimize the use of the
firms resources
Reduce uncertainty by
coordinating with other
companies

Its a matter of balance

The role of Supply Chain Management

A matter of balance

Demand

Resources

Production
Management
Introduction to Manufacturing
and Production Management