Chapter 14

OPERATIONS:
Producing Goods and
Services

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

Understand 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.

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part.

Learning Objectives, continued

Discuss the primary assembly processes

and production methods for creating
goods.
Describe various production process
layouts.
Explain the role of productivity and quality
metrics for improving operations
performance.
Know how IT supports efficient production
of goods and services.

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part.

Figure 14.1

The Production Process

Source: Brian J. Gibson, Ph.D.

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part.

Production Operations in SCM

The Role of Production Operations
Manufacturing and service production supplies an economic utility called
form utility.
Effective production operations are supported by and support the supply
chain.
Supply chain tradeoffs must be understood and made.

Production Modes
Make to stock vs. Make to order
No two processes are organized exactly alike or perform to the same level.
Make-to-order methods are more complex, more labor intensive, and
require longer lead time than the make-to-stock, mass-production-oriented
operations
Process functionality helps the success of an organization.

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The Role of Production Operations in SCM, continued

Production Tradeoffs
Economies of scope
The capability of being able to produce a range of products
(product mix)

Changing customer demand

To be met by efficient production runs for a wide variety of
products in low volume.

Tradeoff decisions among production methods

Based on good understanding of mfg. processes for goods and
their costs

Production and supply chain costs

Which vary among make-to-stock, assemble-to-order, and buildto-order products.

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Figure 14.2

Total Cost of Manufacturing

Source: Adapted from Bowersox, Closs & Cooper, Supply Chain Logistics Management, 3rd ed. (2010)
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The Role of Production Operations in SCM, continued

Production Challenges

Intensified competition,
more demanding customers, and
relentless pressure for efficiency as well as adaptability.

Competitive pressures for many established (and

focused) manufacturers and service providers (OEMs
and ODMs)
(End) customers demand for choice and rapidly
changing tastes.

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part.

Operations Strategies and Planning

Production (operation) strategies
Focus on waste reduction, operation efficiency, and
scale-ability.
Use push-based strategies for immediate delivery of
off-the-shelf, low-cost, standardized goods.
Use pull-based systems to coordinate production and
distribution with actual customer demand.
Apply lean production concepts to minimize material
flow time, by having materials arriving at the needed
location just in time for processing and rapidly flowing
them through the production system.
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part.

Figure 14.3

Evolution of Production Strategies

Source: Adapted from Manufacturing Strategy: An Adaptive Perspective (SAP 2003)

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10

Table 14.1

TPS Seven Deadly Wastes

Source: Ohno, Toyota Production System: Beyond Large Scale Production (1988)
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Operations Strategies and Planning, continued

Production Strategies, continued

Machine flexibility
General purpose machines and equipment staffed by crosstrained workers provide the ability to produce different types
of products

Routing flexibility
Provides managers with a choice between machines for a
parts next operation

Offshoring
Activity be relocated to a contract manufacturer in another
country

Adaptive manufacturing
Provides companies with the ability to replace planning and
replanning with execution based on real-time demand
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Operations Strategies and Planning, continued

Production Planning
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

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Figure 14.4

Production Planning Activities

Source: Adapted from Wisner, Tan, & Leong, Principles of Supply Chain Management, 2nd ed. (2009)
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Operations Strategies and Planning, continued

Production Planning, continued

Resource requirements planning (RRP)
Long-run, macro-level planning tool

Rough-cut capacity plan (RCCP)

Checks the feasibility of the master production schedule

Capacity requirements planning (CRP)

Checks the feasibility of the materials requirement plan

Aggregate production plan (APP)

Long-range materials plan that translates annual business
plans, marketing plans into production plan

Master production schedule (MPS)

Medium-range plan that is more detailed than the APP

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Production Execution Decisions

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.

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Production Execution Decisions, continued

Production Process Layout, continued

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

Fixed location (project) layout

Fixed location layout where the product remains in place for

the duration of production

Process layout (based on workcenter)

Process-focused layout that groups together similar

equipment or functions
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Production Execution Decisions, continued

Production Process Layout, continued

Manufacturing cell (cellular manufacturing)
Process-focused layout that dedicates production areas to a
narrow range of products that are similar in processing
requirements

Continuous (process) line

Similar to assembly lines, with product flowing through a

predetermined sequence of stops.

Assembly line

Product-focused layout in which machines and workers are

arranged according to the progressive sequence of
operations

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Figure 14.5

Facility Layout Matrix

Source: Adapted from Jacobs & Chase, Operation and Supply Chain Management: The Core (2008)
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Production Execution Decisions, continued

Packaging

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.

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Production Metrics
Total cost
All money spent on manufacturing must be summarized and the
total compared to the previous period.
Quality
This may vary by company but it must focus on quality from the
perspective of the customer.
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.

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21

Production Metrics, continued

Safety
The standard metrics of accident/incident frequency, severity,
and cost are important to monitor, with continuous
improvement (i.e., reduction) as the goal.
Delivery performance
Is the percentage of customer orders shipped when the
customer requested them to be shipped.

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Production Technology
Manufacturing Execution Systems (MES)
Central software used to monitor and control
production operations.
Linked to other enterprise tools like ERP systems,
PLM tools, and scheduling and planning systems.

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Table 14.3

MES Key Functionality

Source: Manufacturing Execution Solutions Association International, MES Functionality & MRP to
MFS Data Flow Possibilities, (2011)

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Summary
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.
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Summary, continued

There have been significant development and shifts in

production strategy. Organizations have advanced from
forecast-driven mass production to demand-driven 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-to-stock, assemble-to-order,
build-to-order, and engineer-to-orderto satisfy demand
for their products.
Within the make-to-order method, companies can
leverage assemble-to-order, build-to-order, or engineerto-order options, based on product complexity and
weakness.
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Summary, continued

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.
Packaging plays important roles in the smooth transfer of
finished goods from the plant to the distribution center
and customer locations.
Sustainability is a key consideration in packaging
selection, and companies are turning to recyclable and
reusable materials for exterior and interior packaging.
Production KPIs must be linked to corporate goals and
objectives, customer requirements, and overall
performance of the production operation.
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Summary, continued

Critical production KPIs address total cost, total cycle

time, delivery performance, quality, and safety.
Manufacturing execution software solutions (systems)
improve an organizations ability to manage production
operations and make them more responsive to
disruptions, challenges, and changing marketplace
conditions.

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part.

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