IE6201: Manufacturing Systems Spring 2008

1. IE6201: Manufacturing SystemsSpring 2008 Instructor: Spyros Reveliotis e-mail: spyros@isye.gatech.edu homepage: www.isye.gatech.edu/~spyros

2. “Course Logistics” • My Office Hours: TuTh 10-11am or by appointment • Course TA: TBA • Course Prerequisites:ISYE 6650 and ISYE 6669 • Grading policy: • Homework: 0% • Project: 10% (based on Littlefield technologies: please, make sure that you buy from the bookstore the necessary permit for accessing the software - $15.00) • Midterm I: 25% • Midterm II: 25% • Final: 40% • Exams closed-book, with 2 pages of notes per midterm exam and 6 pages for the final. • Reading Materials: • Course Textbook: W. Hopp and M. Spearman, Factory Physics, 3rd(?) Ed., McGraw Hill / IRWIN • Course slides and any other material posted at my homepage or the library electronic reserves.

3. Course Objectives(What this course is all about?) • How to design and operate contemporary production systems (and more…) • A systematic exposition of the design, planning and control problems that arise in the context of the aforementioned facilities. • A systematic introduction to inventory control theory and its application in contemporary production and distribution networks. • A formal analysis of the dynamics of production processes, based on queueing theoretic concepts and models. • The integration of the results developed in Step 3 to the prevailing production planning and control framework(s).

4. Reading Assignment Chapter 0, 6 and 1 from your textbook

5. Inputs Outputs • Materials • Capital • Labor • Manag. Res. • Goods • Services Organization Stage 1 Stage 2 Stage 4 Stage 3 Stage 5 Our abstraction of the Production System • Production System: A transformation process (physical, locational, physiological, intellectual, etc.) • The production system as a process network Suppliers Customers

6. Productivity: Basic Organizational Performance Measure Productivity = Value produced / Input used = Output / (Labor + Material + Capital + Energy + Miscellaneous) • Remarks: • Typically both the numerator and the denominator are measured in $$$. If the output corresponds to actual sales, then productivity measures both effectiveness (doing the right thing) and efficiency (in the right way). • From an economic standpoint, major emphasis is placed on the annual percentage change (hopefully increase) of productivity. • For the entire US economy, the annual increase in productivity is higher than 2.5% (38% of this increase is due to capital improvements, 10% to labor improvements and 52% to management improvements). • For the Chinese economy, this number has been more than 6% lately!

7. Major Productivity Variables and their contribution to productivity increase • Labor • Better basic education • Better diet • Better social infrastructure like transportation and sanitation • Better labor utilization and motivation • Capital • Steady and well-planned investments on equipment and its timely maintenance • Research & Development • Controlling of the cost of capital • Management • Exploitation of new (information) technologies • Utilization of accumulated knowledge • Education Knowledge Society

8. Operations Management (OM) Definition: The study and improvement / optimization of the set of activities that create goods and services in an organization. • Typical issues addressed: • Service and product selection and design • Quality Management • Process and capacity design • Facility design • Facility Location • Human resources and job design • Inventory management • Production planning and control • Maintenance • Supply-chain management

9. The major functional units of a modern organization Strategic Planning: defining the organization’s mission and the required/perceived core competencies Production/ Operations: product/service creation Finance/ Accounting: monitoring of the organization cash-flows Marketing: demand generation and order taking

10. Examples (borrowed from Heizer & Render)

11. Fit Between Corporate and Functional Strategies (Chopra & Meindl) Corporate Competitive Strategy Product Development Strategy Supply Chain or Operations Strategy Marketing and Sales Strategy Information Technology Strategy Finance Strategy Human Resources Strategy

12. Corporate Mission • The mission of the organization • defines its purpose, i.e., what it contributes to society • states the rationale for its existence • provides boundaries and focus • defines the concept(s) around which the company can rally • Functional areas and business processes define their missions such that they support the overall corporate mission in a cooperative and synergistic manner.

13. Corporate Mission Examples • Merck: The mission of Merck is to provide society with superior products and services-innovations and solutions that improve the quality of life and satisfy customer needs-to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return. • FedEx: FedEx is committed to our People-Service-Profit philosophy. We will produce outstanding financial returns by providing totally reliable, competitively superior, global air-ground transportation of high-priority goods and documents that require rapid, time-certain delivery. Equally important, positive control of each package will be maintained utilizing real time electronic tracking and tracing systems. A complete record of each shipment and delivery will be presented with our request for payment. We will be helpful, courteous, and professional for each other, and the public. We will strive to have a completely satisfied customer at the end of each transaction.

14. Defining the Corporate Strategy Responsiveness (Reliability; Quickness; Flexibility; e.g., Dell, Overnight Delivery Services) Competitive Advantage through which the company market share is attracted Cost Leadership (Price; e.g., Wal-Mart, Southwest Airlines, Generic Drugs) Differentiation (Quality; Uniqueness; e.g., Luxury cars, Fashion Industry, Brand Name Drugs)

15. Defining the Corporate Strategy • Corporate Strategy: The organization’s positioning in terms of • responsiveness, • cost leadership and • product differentiation requirements, i.e., the sought competitive advantage(s). • The corporate strategy dictates the detailed strategies for each functional area (i.e., Operations, Finance, Marketing) but it is also affected by those areas. • Collectively, all these strategies seek to exploit (external) opportunities and (internal) strengths, neutralize (external) threats, and address (internal) weaknesses

16. The operations frontier, trade-offs, and the operational effectiveness Responsiveness Cost Leadership Differentiation

17. Factors affecting Corporate Strategy • External • Emerging strengths and weaknesses of competitors => new threats and opportunities, respectively • New industry entrants • Development of substitute products • Development of new technologies • Legal developments (e.g., environmental concerns and regulations) • Economic and political developments (e.g., new international agreements, political crises) • Internal • Company politics and restructuring • Modified relationships with customers and suppliers • Product Life Cycle

18. Strategy and Issues during a Product’s Life(J. Heizer & B. Render, “Operations Management”, Prentice Hall) Growth Maturity Decline Introduction • Poor time to change image, price or quality • Competitive costs become critical • Defend market position • Cost control critical • Practical to change price or quality image • Strengthen niche • Best period to increase market share • R&D engineering critical Sales Time • Frequent product and process changes • Short production runs • High production costs • Limited models • Attention to quality • Little product differentiation • Overcapacity in the industry • Reduce capacity and eventually prune line to eliminate items not returning good margin • Forecasting critical • Products and process reliability • Increase capacity • Shift towards product focus • Enhance distribution • Standardization - minor product changes • Optimum capacity • Process stability • Long production runs

19. The primary “drivers” for achieving strategic fit in Operations Strategy(adapted from Chopra & Meindl) Corporate Strategy Operations Strategy Efficiency Responsiveness Market Segmentation Facilities Inventory Transportation Information

20. The role of Facilities • Facilities: The locations where inventory is • processed and transformed into another state (manufacturing) or • staged before being shipped to the next stage (warehousing) • In general, centralization boosts efficiency, while decentralization boosts responsiveness • Primary decisions: • Location • Proximity to the customer • Proximity to resources • Access to markets (ability to circumvent quotas and tariffs) • Infrastructure • Operational costs and tax incentives • Capacity • Capital cost vs. responsiveness • Operations Methodology for Manufacturing Facilities • Product vs. functional focus • Flexible vs. dedicated capacity • Warehousing methodology • Storage modes and material flow organization • Cross-docking

21. The role of Inventory • Primary inventory components: • Raw Material • Work In Process (WIP) • Finished Goods • It exists because of the finiteness of the production and transportation rates (Little’s Law: I=TH*T) • Types of Inventory • Safety Inventory: It is used to deal with the randomness in the experienced demand; it is set so that it helps the supply chain meet some “service level” (i.e., control the probability that no stock-out will be experienced at any replenishment cycle). • Seasonal Inventory: It is used to help the supply chain deal with predictable variability in demand. • Cycle Inventory: It is incurred in an effort to control the impact of “fixed” ordering and set-up costs. • Opportunistic Inventory: Takes advantage of “bargains”. • Sourcing: Determine the set of suppliers / subcontractors to be used, and develop the contracts that will govern the relationship.

22. The role of Transportation • Transportation: The SC element that moves product between its different stages. • Primary decisions: • Mode(s) of Transportation • Air: fastest but most expensive • Truck: Relatively quick, inexpensive and very flexible mode • Rail: Inexpensive mode to be used for large quantities • Ship: Slowest but often the most economical choice for large overseas shipments • Pipeline: Used (primarily) for oil and gas • Electronic transportation: for goods as music and movies • Route and Network Selection • In-house or Outsource to some 3PL provider

23. The role of Information • Information exchange is necessary for the most extensive modes of coordination sought in contemporary supply chains. It allows the supply chain to improve simultaneously its efficiency and responsiveness. • Information-related decisions • Push vs. pull • Extent and modes of information sharing and coordination • Forecasting and Aggregate Planning schemes • Pricing and revenue management policies • Enabling Technologies: • Electronic Data Interchange (EDI): Enables paperless transactions, primarily for “backend” operations of the SC. • The Internet and the WWW. • Enterprise Resource Planning (ERP): enables transactional tracking and global visibility of information in the SC. • Supply Chain Management (SCM) software: decision support tools.

24. The role of Market Segmentation • Need to develop different strategies for different geographical or market segments that align to the preferences and attitudes of the corresponding customer bases. • Need to align the provided products and services, as well as the deployed production and business functions, to the local culture and ethics. • Supporting practices • broader product lines • globalized operations • (mass-)customization • Need to manage the resulting complexity. • Modularity • Combinatorial customization • Design for postponement

25. Course Outline • 1.  Inventory Control Theory • The basic EOQ model and some of its variants • Replenishment coordinating approaches • Dynamic Lot Sizing • Statistical Inventory Control Models • The News Vendor Model • The Base Stock Model • The (Q,r) Model • An introduction to multi-echelon models 2. Factory Physics: A queueing-theoretic analysis of serial production systems • Flow lines as the preferred layout for discrete-part, repetitive manufacturing • Flow line classification: Push vs Pull, Synchronous vs. Asynchronous production lines, KANBAN and CONWIP-based production systems • Characterizing a flow line as a queueing system • Understanding the fundamental relationships between the line attributes and its performance indices • Analyzing the impact of the various operational detractors and the resulting operational variability

26. Course Outline • 3.   Integrating the Factory Physics insights to the OM practice • Process Design, Capacity Planning and Line Balancing • Hierarchical Production Planning • The classical hierarchical planning framework • Forecasting • Aggregate Planning • Master Production Scheduling (MPS) and Material Requirement Planning (MRP), and their limitations • Shop floor scheduling • Just-in-Time (JIT) and Lean Manufacturing • The JIT philosophy • JIT practices and the KANBAN production authorization system • Shop-floor control based on the CONWIP production authorization model • Production Planning and Scheduling for CONWIP-controlled production systems • The JIT limitations