Intropduction to Production Management Outline Introduction to production

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Intropduction to Production Management

Intropduction to Production Management

Outline • Introduction to production planning • Definition and classification of production systems •

Outline • Introduction to production planning • Definition and classification of production systems • Decisions and performance measure for production systems. • Product and process life cycle concepts • Goods vs. services and their shares in the Economy. • Productivity • Changing challenges in production management

Essential functions in any organization 1. Marketing – generates demand Marketing 2. Production/Manufacturing/operations –

Essential functions in any organization 1. Marketing – generates demand Marketing 2. Production/Manufacturing/operations – /operations creates the product 3. Finance/accounting – tracks how well Finance/accounting the organization is doing, pays bills, collects the money

Production/Manufacturing Production/manufacturing is the process of converting raw materials or semi-finished products into finished

Production/Manufacturing Production/manufacturing is the process of converting raw materials or semi-finished products into finished products that have value in the market place. This process involves the contribution of labor, equipment, energy, and information. 4

The Production System Raw materials Energy Labor Equipment Information Production System Finished products Scrap

The Production System Raw materials Energy Labor Equipment Information Production System Finished products Scrap Waste 5

Inventory is both an input and output of the production process. Inventory can be

Inventory is both an input and output of the production process. Inventory can be in the form of raw materials, semi-finished, and finished products. 6

The Inventory System Supply source Demand source Inventory 7

The Inventory System Supply source Demand source Inventory 7

The Production-Inventory System Suppliers Raw materials Fabrication Assembly Component parts inventory Distribution and sales

The Production-Inventory System Suppliers Raw materials Fabrication Assembly Component parts inventory Distribution and sales Finished goods inventory 8

The Supply Chain Assembly/ Manufacturing 2 nd tier suppliers 1 st tier suppliers Distribution

The Supply Chain Assembly/ Manufacturing 2 nd tier suppliers 1 st tier suppliers Distribution centers Retailers 9

Supply Chain Management (SCM) is the set of functions concerned with the effective utilization

Supply Chain Management (SCM) is the set of functions concerned with the effective utilization of limited resources that may reside with one or more independent firms and the management of material, information, and financial flows within and between these firms, so as to satisfy customer demands and create profits for all firms. Check out: Wal. Mart, 7 eleven Japan, vendor managed inventory, Collaborative forecasting and replenishment planning 10

Production Planning and Inventory Control Production planning and inventory control is the subset of

Production Planning and Inventory Control Production planning and inventory control is the subset of SCM functions that focus on managing production operations and inventory throughout the supply chain. 11

Examples of Decisions in Production Systems § What should we produce, how much, and

Examples of Decisions in Production Systems § What should we produce, how much, and when (forecasting)? § How much can we produce (capacity planning)? § How much components/finished goods do we have and how much do we need (inventory management)? § When should we produce and using which resoursces (production planning and scheduling)? 12

Examples of Performance Measures § Cost (are products being created at minimum or acceptable

Examples of Performance Measures § Cost (are products being created at minimum or acceptable cost? ) § Quality (what are the specifications of the products? What percentages of shipped products meet specification? ) § Variety (how many types of products are - or can be – simultaneously produced? ) § Service (how long does it take to fulfill a customer order? how often are quoted lead times met? ) 13

Examples of Performance Measures (continued…) § Flexibility (how quickly can existing resources be reconfigured

Examples of Performance Measures (continued…) § Flexibility (how quickly can existing resources be reconfigured to produce new products? ) § Worker satisfaction (are workers and managers throughout the supply chain happy and motivated? ) § Safety (are work environments safe for workers and the surrounding community? ) § Environmental impact (how environmentally friendly are the supply chain processes and the products? ) 14

Company Objectives Income = Revenue - Expense • Need to increase income with: –

Company Objectives Income = Revenue - Expense • Need to increase income with: – Best customer service – Lowest production costs (labor, material, energy etc. ) – Lowest inventory investment – Lowest distribution costs

Conflicts in Traditional Systems Figure 1. 3 Conflicting Objectives

Conflicts in Traditional Systems Figure 1. 3 Conflicting Objectives

Conflicts in Traditional Systems Marketing Production High Revenue Low Cost Finance Cash Flow High

Conflicts in Traditional Systems Marketing Production High Revenue Low Cost Finance Cash Flow High Low Production Disruptions Many Few Inventories High Low Objective Implications Customer Service High

Classification of the Production Process § Production quantity – Mass production – Batch production

Classification of the Production Process § Production quantity – Mass production – Batch production – Job shop production 18

Classification of the Production Process § Production quantity – Mass production – Batch production

Classification of the Production Process § Production quantity – Mass production – Batch production – Job shop production § Product variety 19

Classification of the Production Process § Production quantity – Mass production – Batch production

Classification of the Production Process § Production quantity – Mass production – Batch production – Job shop production § Product variety – Single product or product line – Family of similar products – One-of-a-kind products 20

Mass Production Systems 21

Mass Production Systems 21

Mass Production Systems § Low product variety § High production volumes § Specialized labor

Mass Production Systems § Low product variety § High production volumes § Specialized labor § Dedicated equipment § High reconfiguration costs § Make-to-stock production § Example; Sugar production, Automobile assembly lines 22

Batch Production Systems 23

Batch Production Systems 23

Batch Production Systems § Medium product variety § Products are made in larger lots

Batch Production Systems § Medium product variety § Products are made in larger lots § Products are made to stock § Programmable/reconfigurable equipment § Significant setup costs § Example: Apparel or Pharmaceuticals production 24

Job Shops 25

Job Shops 25

Job Shops § High product variety § Products are made in small lots §

Job Shops § High product variety § Products are made in small lots § Products are made to order § Flexible equipment and labor § Small setups § Example; Metal parts or PCBs production 26

Classification of Production Systems (continued…) § Order fulfillment 27

Classification of Production Systems (continued…) § Order fulfillment 27

Classification of Production Systems (continued…) § Order fulfillment – Make-to-stock systems (MTS) – Make-to-order

Classification of Production Systems (continued…) § Order fulfillment – Make-to-stock systems (MTS) – Make-to-order systems (MTO) – Hybrid MTO/MTS 28

Classification of Production Systems (continued…) § Order fulfillment – Make-to-stock systems (MTS) – Make-to-order

Classification of Production Systems (continued…) § Order fulfillment – Make-to-stock systems (MTS) – Make-to-order systems (MTO) – Hybrid MTO/MTS § Resource configuration 29

Classification of Production Systems (continued…) § Order fulfillment – Make-to-stock systems (MTS) – Make-to-order

Classification of Production Systems (continued…) § Order fulfillment – Make-to-stock systems (MTS) – Make-to-order systems (MTO) – Hybrid MTO/MTS § Resource configuration – Product layout – Process layout – Cellular layout – Fixed position layout 30

Product layout • Product layouts are found in flow shops (all product follows the

Product layout • Product layouts are found in flow shops (all product follows the same sequence of operations. Repetitive assembly and process or continuous flow industries). • Flow shops produce high-volume, highly standardized products that require highly standardized, repetitive processes. • In a product layout, resources are arranged sequentially, based on the routing of the products. • Two types of lines are used in product layouts: paced (moving) and unpaced.

Product layout

Product layout

Process Layout • Process layouts are found primarily in job shops, or firms that

Process Layout • Process layouts are found primarily in job shops, or firms that produce customized, low-volume products that may require different processing requirements and sequences of operations. • Process layouts are facility configurations in which operations of a similar nature or function are grouped together. • Their purpose is to process goods or provide services that involve a variety of processing requirements. • Example; A machine shop; general-purpose machines are grouped together by function (e. g. , milling, grinding, drilling, hydraulic presses, and lathes)

Process Layout

Process Layout

Cellular Layout • Cellular manufacturing is a type of layout where machines are grouped

Cellular Layout • Cellular manufacturing is a type of layout where machines are grouped according to the process requirements for a set of similar items (part families) that require similar processing. • These groups are called cells. • A cellular layout is an equipment layout configured to support cellular manufacturing.

Cellular Layout

Cellular Layout

Fixed position layout • A fixed-position layout is appropriate for a product that is

Fixed position layout • A fixed-position layout is appropriate for a product that is too large or too heavy to move. • Fixed-position layout examples include construction (e. g. , buildings, dams, and electric or nuclear power plants), shipbuilding, aircraft, aerospace, farming, drilling for oil, home repair, and automated car washes • For services, other reasons may dictate the fixed position (e. g. , a hospital operating room where doctors, nurses, and medical equipment are brought to the patient).

Fixed position layout

Fixed position layout

Classification of Production Systems (continued…) § Inputs/outputs 39

Classification of Production Systems (continued…) § Inputs/outputs 39

Classification of Production Systems (continued…) § Inputs/outputs – Discrete production systems (discrete inputs and

Classification of Production Systems (continued…) § Inputs/outputs – Discrete production systems (discrete inputs and outputs - cars, computers, machine tools, etc) – Continuous production systems (continuous inputs and outputs - chemicals, textiles, food processing, pharmaceuticals) – Hybrid systems (Discrete inputs/continuous outputs or continuous inputs/discrete outputs - steel, plastics, recycling) 40

Product-Process Matrix High Low Multiple Few Major Volume, Products, High One of a Low

Product-Process Matrix High Low Multiple Few Major Volume, Products, High One of a Low Higher Standard. Kind Volume ization Job Shop. Jumbled flow Metal parts produced in machining shop Mass production Batch. Disconnected line flow Assembly Line. Connected line flow Continuous Flow Nahmias (2009) Flexibility (High) Unit Cost (High) Apparel Pharmaceuticals Automobile Assembly Burger King Sugar Refinery Paper towel Flexibility (Low) Unit Cost (Low)

Manufacturing Strategies • More stable demand • More quantity • Less customer involvement in

Manufacturing Strategies • More stable demand • More quantity • Less customer involvement in design • Less variety • Less lead time Manufacturing strategy and lead time Arnold, Chapman, & Clive: Intro Materials Management, 6 th ed.

Manufacturing Strategies • Engineer-to-order – Customer’s requirements determines the design of the product. High

Manufacturing Strategies • Engineer-to-order – Customer’s requirements determines the design of the product. High customization – Normally no inventory is held – Long lead time (includes design lead time) – Example: Manufacturing of special purpose machines • Make-to-order – – – Manufacturing starts after the customer orders Mixture of standard products and custom designed products Inventory is mostly in the form of raw material Shorter lead time than engineer-to-order Manufacturing of a meal in a restourant

Manufacturing Strategies • Assemble-to-order – – – Product is made from standard components Delivery

Manufacturing Strategies • Assemble-to-order – – – Product is made from standard components Delivery lead time is further reduced Inventory is held as components Customer only selects component options. Example: Car assembly plants • Make-to-stock – No customer involvement in product design. – Manufacturer satisfies demand from a finished good inventory. – Production is planned based on inventory levels. Demand is quite stable and the per unit cost of product is low. – Example: Diaper/paper towel production

The Product Life-Cycle

The Product Life-Cycle

The Product Life Cycle

The Product Life Cycle

The Product Life-Cycle • Demand for new products goes trough an identifiable cycle called

The Product Life-Cycle • Demand for new products goes trough an identifiable cycle called product life cycle – Start-up • Market for the product developed, High manufacturing cost, Design problems corrected, Low competiton – Rapid growth • Demand picks up quickly, standardization in manufacturing and cost reduction, competition starts. Right pricing strategies to establish the product in the market

The Product Life-Cycle – Maturation • Demand stabilizes, management should protect and improve market

The Product Life-Cycle – Maturation • Demand stabilizes, management should protect and improve market share and brand loyalty through competitive pricing, focus on cost reduction. – Stabilization or decline • Market gets saturated by the competitiors and/or product becomes obsolete. Reduced investment in promotions and new manufacturing technologies

Manufacturing Cost The Product and Process Life Cycle Automation, economies of scale and learning

Manufacturing Cost The Product and Process Life Cycle Automation, economies of scale and learning effects

Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the

Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) The objective of all production managers is to improve productivity High productivity is the source of high living standards in the developed countries.

Productivity = Units produced Input used • Measure of process improvement • Represents output

Productivity = Units produced Input used • Measure of process improvement • Represents output relative to input • Only through productivity increases can our standard of living improve

Productivity Calculations Labor Productivity = = Units produced Labor-hours used 1, 000 250 =

Productivity Calculations Labor Productivity = = Units produced Labor-hours used 1, 000 250 = 4 units/labor-hour One resource input - single-factor productivity

Multi-Factor Productivity Output Productivity = Labor + Material + Energy + Capital + Miscellaneous

Multi-Factor Productivity Output Productivity = Labor + Material + Energy + Capital + Miscellaneous - Also known as total factor productivity - Output and inputs are often expressed in dollars Multiple resource inputs - multi-factor productivity

Labor statistic in 2011 Turkey vs Europe

Labor statistic in 2011 Turkey vs Europe

Labor productivity in 2011 Turkey vs Europe

Labor productivity in 2011 Turkey vs Europe

Labor productivity in 2011 Turkey vs Europe Productivity in firms with different employer sizes

Labor productivity in 2011 Turkey vs Europe Productivity in firms with different employer sizes

Collins Title Company The company has a staff of 4, each working 8 hours

Collins Title Company The company has a staff of 4, each working 8 hours per day (for a payroll cost of $640/day) and overhead expenses of $400 per day. Collins processes and closes on 8 titles each day. The company recently purchased a computerized titlesearch system that will allow the processing of 14 titles per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now $800 per day.

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost =

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost = $640/day 8 titles/day Old labor = productivity 32 labor-hrs 8 titles/day Overhead = $400/day

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost =

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost = $640/day 8 titles/day Overhead = $400/day 8 titles/day Old labor = productivity 32 labor-hrs =. 25 titles/labor-hr

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost =

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost = $640/day New System: 14 titles/day 8 titles/day Overhead = $400/day Overhead = $800/day 8 titles/day Old labor = productivity 32 labor-hrs =. 25 titles/labor-hr 14 titles/day New labor = productivity 32 labor-hrs

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost =

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost = $640/day New System: 14 titles/day 8 titles/day Overhead = $400/day Overhead = $800/day 8 titles/day Old labor = productivity 32 labor-hrs =. 25 titles/labor-hr 14 titles/day New labor = =. 4375 titles/labor-hr productivity 32 labor-hrs 75% increase

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost =

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost = $640/day New System: 14 titles/day 8 titles/day Overhead = $400/day Overhead = $800/day 8 titles/day Old multifactor = productivity $640 + 400

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost =

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost = $640/day New System: 14 titles/day 8 titles/day Overhead = $400/day Overhead = $800/day 8 titles/day Old multifactor = =. 0077 titles/dollar productivity $640 + 400

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost =

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost = $640/day New System: 14 titles/day 8 titles/day Overhead = $400/day Overhead = $800/day 8 titles/day Old multifactor = =. 0077 titles/dollar productivity $640 + 400 14 titles/day New multifactor = productivity $640 + 800 75% increase

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost =

Collins Title Productivity Old System: Staff of 4 works 8 hrs/day Payroll cost = $640/day New System: 14 titles/day 8 titles/day Overhead = $400/day Overhead = $800/day 8 titles/day Old multifactor = =. 0077 titles/dollar productivity $640 + 400 14 titles/day New multifactor = =. 0097 titles/dollar productivity $640 + 800 26% increase

Measurement problems in productivity 1. Quality may change while the quantity of inputs and

Measurement problems in productivity 1. Quality may change while the quantity of inputs and outputs remains constant 2. External elements may cause an increase or decrease in productivity 3. Precise units of measure may be lacking. (Not all automobiles require the same inputs) 4. Measuring productivity in service sector is difficult.

Characteristics of Goods • Tangible product • Consistent product definition • Production usually separate

Characteristics of Goods • Tangible product • Consistent product definition • Production usually separate from consumption • Can be inventoried • Low customer interaction

Characteristics of Service • Intangible product • Produced and consumed at same time •

Characteristics of Service • Intangible product • Produced and consumed at same time • Often unique • High customer interaction • Inconsistent product definition • Often knowledge-based • Frequently dispersed

Goods and Services Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care

Goods and Services Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling 100% | 75 | 50 | 25 | Percent of Product that is a Good 0 | 25 | 50 | 75 | 100% | Percent of Product that is a Service

Manufacturing and Service Employment (millions) 120 – 100 – 80 – Service 60 –

Manufacturing and Service Employment (millions) 120 – 100 – 80 – Service 60 – 40 – 20 – 0– Manufacturing | | | | 1950 1970 1990 2010 (est) 1960 1980 2000 Figure 1. 4 (A)

Industrial production (right scale) – 150 – 125 – 100 – 75 40 30

Industrial production (right scale) – 150 – 125 – 100 – 75 40 30 20 10 0 – – – Manufacturing – 50 employment (left scale) Index: 1997 = 100 Employment (millions) Manufacturing Employment and Production – 25 | 1950 | | | –| 0 1970 1990 2010 (est) 1960 1980 2000 Figure 1. 4 (B)

Industry and Services as Percentage of GDP 90 − Services 80 − Manufacturing 70

Industry and Services as Percentage of GDP 90 − Services 80 − Manufacturing 70 − 60 − 50 − 40 − 30 − 20 − US UK Spain South Africa Russian Fed Mexico Japan Hong Kong Germany France Czech Rep China Canada 0− Australia 10 −

Development of the Service Economy United States Canada France Italy Britain Japan W. Germany

Development of the Service Economy United States Canada France Italy Britain Japan W. Germany | | 40 50 1970 | | 60 70 Percent | 80 2010 (est) Figure 1. 4 (C)

Service sector in Turkey • Hizmet Sektörü, Türkiye’de istihdam açısından en fazla çalışanın olduğu

Service sector in Turkey • Hizmet Sektörü, Türkiye’de istihdam açısından en fazla çalışanın olduğu alandı. Bu alanda 2008 yılı Mart ayı TÜİK rakamlarına göre istihdam edilmiş olan toplam 20. 752. 000 kişinin toplam 10. 258. 000’i, yani istihdamdaki nüfusun % 49, 4’ü çalışıyordu. • 1998 temel fiyatlarına göre sabit fiyatlarla sektörlerin GSYH’ya katkısı açısından Hizmet Sektörü 2007 yılında % 56, 90’lık bir oranla en büyük paya sahipti. Yani Hizmet Sektörü hem istihdam açısından, hem de ekonomideki katkı payı açısından Türkiye ekonomisinde en önemli yere sahipti. (*2) • http: //sey. ydicagri. org/pdfs/sey_III_hizmetler. pdf

Changing Challenges in Production Management Traditional Approach Reasons for Change Current Challenge Ethics and

Changing Challenges in Production Management Traditional Approach Reasons for Change Current Challenge Ethics and regulations not at the forefront Public concern over pollution, corruption, child labor, etc. High ethical and social responsibility; increased legal and professional standards Local or national focus Growth of reliable, low cost communication and transportation Global focus, international collaboration Lengthy product development Shorter life cycles; growth of global communication; CAD, Internet Rapid product development; design collaboration Figure 1. 5

Changing Challenges Traditional Approach Reasons for Change Current Challenge Low cost production, with little

Changing Challenges Traditional Approach Reasons for Change Current Challenge Low cost production, with little concern for environment; free resources (air, water) ignored Public sensitivity to environment; ISO 14000 standard; increasing disposal costs Environmentally sensitive production; green manufacturing; sustainability Low-cost standardized products Rise of consumerism; increased wealth; individualism Mass customization Figure 1. 5

Changing Challenges Traditional Approach Reasons for Change Current Challenge Emphasis on specialized, often manual

Changing Challenges Traditional Approach Reasons for Change Current Challenge Emphasis on specialized, often manual tasks Recognition of the employee's total contribution; knowledge society Empowered employees; enriched jobs “In-house” production focus; low-bid purchasing Rapid technological change; increasing competitive forces Supply-chain partnering; joint ventures, alliances Large lot production Shorter product life cycles; increasing need to reduce inventory Just-In-Time performance; lean; continuous improvement Figure 1. 5

Relevant Societies to Production Management (US) • • Institute of Industrial Engineers APICS, the

Relevant Societies to Production Management (US) • • Institute of Industrial Engineers APICS, the American Production and Inventory Control Society Council of Supply Chain Management Professionals American Society of Quality (ASQ) Institute for Supply Management (ISM) Project Management Institute (PMI) Charter Institute of Purchasing and Supply (CIPS)

HW 1 1. Read an article on one of the following topics (or on

HW 1 1. Read an article on one of the following topics (or on any topic related to production management) and summarize your understanding (no more than a page and a half). Make sure that article is written after 2005. The article should be a none-technical type. Submit both your summary and a copy of the article. Check out the magazines of the societies listed before. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Forecasting Advanced production planning Lean manufacturing Mass customization and an application Collaborative forecasting and replenishment planning Inventory management Capacity planning Sustainable Manufacturing Product life cycle and strategy Supply chain management in Walmart or in Seveneleven Japan Business Analytics Customer relationship management Assemble to order systems Production activity control Lot sizing in manufacturing

HW 1 2. Consider following three products and comment on the production system characteristics,

HW 1 2. Consider following three products and comment on the production system characteristics, its layout type, and manufacturing strategy (use internet to search for the production processes); - Cereal for breakfast - Hydraulic cylinders as a spare parts for excavators - Custom designed bicycles

 • 3. Fill in the blanks (read two relevant document in course website)

• 3. Fill in the blanks (read two relevant document in course website) – – Production is ______ Mass production system is appropriate if ___ Cell is a group of ______ Supply chain management is about finding win-win scenarios between _____. SCM is all about ________ – For products with ___________ make-tostock mode is appropriate.

 • As we move from starp-up pahse to mature phase in a product

• As we move from starp-up pahse to mature phase in a product life cycle, our process can move from _______ type to ________ type process. • In developed economies, approximately __________ of economy is in service sector and this ration is about ____ in Turkey • Matching production capacity and demand is difficult in service sector since we can not _____________ • The main reason for the big difference in labor productivity between Turkey and European countries is __ ________________________ • Most important challenge facing production managers today is ___________________