CHAPTER 5: Manufacturing

1. CHAPTER 5: Manufacturing McGraw-Hill/Irwin

2. Overview of manufacturing • The quality imperative • Manufacturing perspective • Manufacturing strategy • Contemporary manufacturing developments

3. The 8 dimensionsof product quality • Performance • How well the product performs in comparison to how it was designed to perform • Reliability • Likelihood that the product will perform throughout its expected life • Durability • The actual life expectancy of the product • Conformance • Does the product meet its specifications as designed • Features • What different functions or tasks can the product perform • Aesthetics • Is the styling, color, workmanship pleasing to the customer • Serviceability • What is the ease of fixing or repairing the product if it fails • PerceivedQuality • Based on customer’s experience before, during and after they purchase a product

4. Total quality management • Total quality management (TQM) is a philosophy focused on meeting customer expectations with respect to all needs, across all company functions, and recognizing all customers, both internal and external • TQM’s basic conceptual elements are: • Top Management commitment and support • Maintaining a customer focus in product, service and process performance • Integrated operations within and between organizations • A commitment to continuous improvement

5. Management standards have been established by the ISO in both quality and environment • The International Organization for Standards (ISO) was formed after World War II • ISO 9000—International Quality Standard • First one established in 1994 • Currently transitioning to ISO 9000:2008 • ISO 14000—International Environmental Standard • First one established in 1998 • Current one is ISO 14001:2004

6. ISO certified suppliers are frequently preferred by procurement departments • They have formal processes in place for continual improvement of their products, services, and processes • They are easier for procurement folks to initially qualify and periodically audit • Certification is done by an external register agency • Firms have to be re-certified every three years They have to conform to an externally defined set of standards for quality and delivery of service They are usually more open to sharing supply chain information They welcome building relationships with their customers

7. Manufacturing perspectives • Brand power is the measure of customer preference based on reputation, product quality and supply chain capabilities • Volume is traditionally treated according to the principle of economy of scale • Average cost to produce product declines as manufacturing volume increases • Particularly important when high fixed costs are present • Variety involves frequent product runs and high repetition of small lot sizes • Processes that can rapidly switch production from one product to another while retaining efficiency are said to have economy of scope

8. Manufacturing perspectives continued • Constraints interact with volume and variety to create realistic manufacturing plans • Capacity is how much can you produce in a given unit of time • Equipment considers how flexible it is • Is one particular piece a bottleneck? • Setup/Changeover considers how quickly can you change from one variety of product to another • Leadtime is the measure of elapsed time between release of a work order to the shop floor and completion of all work on the product to achieve ready-to-ship status

9. The four basic manufacturing processes • Job shop creates a custom product for each customer • Batch process manufactures a small quantity of an item in a single production run • Line flow process has standard products with a limited number of variations moving on an assembly line through stages of production • Continuous process is used to manufacture such items as gasoline, laundry detergent and chemicals • Modifications of the above can create new options • Mass customization produces a unique product quickly and at a low cost using a high volume production process

10. Manufacturing strategies should match market requirements • Engineer to Order (ETO) is used when products are unique and extensively customized for the specific needs of individual customers • Make to Order (MTO) relies on relatively small quantities, but more complexity • Requires much interaction with customer to work out design and specification • Usually shipped direct to customer • Assemble to Order (ATO) is when base components are made, stocked to forecast, but products are not assembled until customer order is received • Manufacturing postponement practiced here • Make to Stock (MTS) features economies of scale, large volumes, long production runs, low variety, and distribution channels

11. Product Design Procurement Cycle Manufacturing Cycle Customer Delivery Cycle MTP Strategy ATO Strategy MTO Strategy ETO Strategy Total Cycle Experienced by Customers. The choice of strategy determines which performance cycles the customer experiences Figure 5.1 Manufacturing Strategy and Performance Cycles

12. Table 5.1Manufacturing process characteristics

13. Total cost of manufacturing • Total cost of manufacturing (TCM) includes: • Procurement and production activities • Inventory and warehousing activities • Transportation activities • TCM generally expressed as cost per unit • Procurement and production costs go down as volume goes up • Inventory and warehousing costs go up as volume goes up • Transportation costs go down as volume goes up, but level off at high volumes

14. TCM per unit ranging across strategic alternatives /MTS Figure 5.2 Total Cost of Manufacturing

15. Contemporary manufacturing developments • Mass customization • Flexible manufacturing • Lean systems • Six sigma • Requirements planning • Design-for-manufacture • Design-for-logistics

16. Manufacturing characterizations

17. Flexibility-based strategies • Flexibility strategy defines the role that operations plays in the business and overall supply chain strategy • Four Competitive Strategies • Mass Customization • Fast Lean Launch • Volume Response • Robust Operation

18. Manufacturing capability examples • Mass Customization • Fast, Lean Launch • Mix/Volume Response • Robust Operations

19. For each strategy we’ll discuss: What is it? • Objectives, key capabilities Where does it work? • Market, industry, technological characteristics What does it take to succeed? • Resources and relationships • Priorities, processes, and practices • Cross functional interfaces • Metrics

20. Conventional Demand-Supply Chain Delivered Cost (or Lead-Time) MC Demand-Supply Chain Standard Custom Product Customization Mass customization: What is it? Individually customized products produced at the low cost of standardized, mass produced goods. • Objective • Wide product menu with reasonable cost and OTD lead time • “On-Demand”, “To Order”, “Postponement”, “Agile Mfg” • Examples: Dell, Cannondale, Cheesecake Factory, Knightly Tours

21. Mass customization: Where does it work? Market Characteristics: • Sufficiently large customer segment that values “translatable variety” • Turbulent, dynamic market • Unpredictable demand - but not entirely unpredictable! • Little impact of regulation or other constraints (designer drugs?) Product/Process Characteristics: • Modular or adjustable product building blocks • Predictable components/functions interactions • Standardized process/skill building blocks • Reasonable lead times, steps, work content

22. Mass customization: What does it take to succeed? • Sense • Direct relationships with customers – demand management • Technologies: measurement, data capture, communication, CRM, POS • Interpret • Technologies: imaging, data translation, configuration management, CAD/CAE/CAPP • Product modularity and good configuration management • Respond • Close relationships with supply chain elements (VI?) • Technologies: CAM, FMS, mixed model lines, digital tracking and control, cellular mfg • Critical functional integration: • Mktg-Sales-(Design)-Mfg

23. Lean Launch Production rate Conventional Launch Time Capability: Fast lean launch Fast and reliable new product launch with few engineering changes • Objectives • Overlapping ramps (up and down) • Reduced time to full scale production (“going vertical”) • High launch quality with few engineering changes required

24. Lean launch example: BMW Structural and Infrastructural Elements • Design–launch–build teams, DFMA, Process simulation, CE • Production engrs and plant workers involved 36 months before launch (vs. 9 months before launch in old system) • Hi fidelity (on-line) prototype and pilot production (release for tooling) • Adaptable plant hardware (e.g., conveyances, IS, …) • Manage varying conditions (product, process, geography) with standardized launch process • Smart use of platform design and modularity strategies • Learning organization – ability to quickly develop and adopt new skills and processes

25. Lean launch: Key challenges • Manage reaction to “discipline” imposed on product design • Shape value system to add launch quality as a priority while preserving design flexibility • Find manufacturing talent to make contributions in NPD • Balance competing priorities of production vs. prototyping on the shop floor • Manage critical functional integration: Design-Mfg

26. Conventional Demand-Supply Chain Conventional Demand-Supply Chain Delivered Cost (or Lead-Time) Unit Cost, OTD, etc Responsive Demand-Supply Chain Responsive Demand-Supply Chain Standard Custom Production Volume Product Customization Capability: Mix/volume response Efficient response to seasonal demands (“chase” strategy) • Objectives • Shift product mix and output over wide ranges with low inventories, cost, and response time • Relatively flat total cost curve

27. Mix/volume response example: Dell servers Structural and Infrastructural Elements • Production, supply, channel management personnel meet weekly • Scalable, flexible capacity • Cross-trained, incentive-driven labor • “Tunable” factory – Teams reassign operators hour-to-hour, create recovery plans as needed, Planners reassign personnel to other factories day-to-day, Mgmt transfers product build among factories season-to-season • Flexible suppliers – Required to be able to increase shipments by 25% on 30 days notice, 50% in first 90 days of new product, VMI, production plans shared weekly, on-line consumption visibility • Demand management – sales incentives, lead time promises

28. Mix/volume response: Key challenges • Improved aggregate planning models • Cost accuracy • Model sophistication • Smart uses of slack capacity; external sources of capacity (surge); temporary labor or overtime • Complimentary products or activities (prototyping?) • Labor for capital substitution • Find proper “balance” in modularity and common building blocks • Critical functional integration: Supply-Mfg-Sales

29. Conventional Demand-Supply Chain Unit Cost, Defects, etc Robust Demand-Supply Chain Supply Variability Robust operations: What is it? Uniform performance over a wide variety of process conditions • Objective: • Accommodate variations in input or resource characteristics with no degradation in quality, yield, lead time, etc. • Examples: Kellogg’s, Furniture Mfg, MBA School

30. Robust operations: Where does it work? • High variability in input material characteristics • High variability in resource characteristics or availability • Substitute materials or resources are possible • Cost of materials is a high percentage of unit cost

31. Robust operations: What does it take to succeed? • Sense and accommodate • High level of process knowledge – understand process physics • High level of process capability • Process flexibility – ability to make adjustments appropriate to incoming requirements • Critical functional integration: • Purchasing-Process Engrg-Mfg

32. Comparative manufacturing models

33. Leansystems • Lean is a philosophy of manufacturing that emphasizes the minimization of the amount of all resources (including time) used in the operation of a company • Defining principle is the elimination of “waste”

34. Primary objectives of lean systems • Produce only the products that customers want • Produce products only as quickly as customers want them • Produce products with perfect quality • Produce in the minimum possible lead times • Produce products with features that customers want and no others • Produce with no waste of labor, materials or equipment • Produce with methods that reinforce the occupational development of workers

35. Sixsigma quality concepts • Six sigma approach is to identify sources of variability and then systematically reduce them • The six sigma goal is to achieve a process standard deviation that is six times smaller than the range of outputs allowed by the product’s design specification

36. Example of a six sigma quality level • Produces defect free product 99.74 percent of the time • 66,807 defects per million parts produced • Produces defect free product 99.99966 percent of the time • 3.4 defects per million parts produced Three sigma quality level Six sigma quality level

37. Logistical interfaces • Resources must be procured, positioned, and coordinated as needed to support the manufacturing strategy selected • Four approaches to achieve this are: • Just-in-time (JIT) • Materials requirements planning (MRP) • Design for logistics • Performance based logistics

38. Just-in-time (JIT) interfaces • Just-in-time only produces to a customer order (ATO, MTO) • Purchased materials and components arrive at the manufacturing or assembly point just at the time they are required for the transformation process • Raw material and work in process inventories are minimized • Demand for materials depends on the finalized production schedule • Lot sizes are as low as one unit • Close cooperation with suppliers is essential!

39. Materials Requirements Planning (MRP) interfaces • For more complex manufacturing (MTO, ETO) where large numbers of components or assemblies are used to produce a final product • Procurement has a key role in insuring all the components are obtained on time to make an end item • Key information requirement is the bill of materials (BOM) • Planning sometimes spans multiple manufacturing locations (e.g. Boeing Dreamliner)

40. Design for manufacture • Design-for-assembly – focuses on minimizing the number of parts and on easing assembly processes. • Design-for-product-servicability – focuses on easing the disassembly and reuse of product components. • Design-for-six-sigma – systematically evaluates the consistency with which a good or service can be produced or delivered given the capabilities of the processes used.

41. Design for logistics interfaces • Design for logistics includes the requirements and framework for logistical support in the early phases of product development • Considers • What we are going to make • How we are going to make it • What logistics capabilities do we need • How we are going to integrate our suppliers into the process • Any subassembly manufacture by suppliers • The need for outsourcing of some parts or assemblies

42. Performance based logistics interface • Initiated by US Department of Defense to purchase performance outcomes instead of individual transactions defined by product specifications • Government specifies desired outcomes and lets suppliers determine the best way to meet those requirements • Currently limited to government purchasing but business organizations are expected to adopt the practice

43. Table 5.2 - Strategic integration framework