Manufacturing Operations

Management
World Class Companies do things consistently well
 Manufacturing Strategy
Good manufacturing/logistics operations is a competitive weapon and a basis
for corporate strategy
 Walmart vs. K-Mart (logistics cost)
 Walmart vs. Amazon (warehousing strategy)
 Japanese penetration of the US auto and electronics markets (quality)
 Dell (customization)
Four Dimensions of Performance: Trade-offs
Cost Quality
▪ Price ▪ Product quality – error free
▪ Efficiency ▪ Process quality (as good as
promised?)
▪ Measured by: => Defect rate
- cost per unit
- utilization

Variety Time
▪ Customer heterogeneity ▪ Responsiveness to
demand
▪ Measured by:
- number of options ▪ Measured by:
- flexibility / set-ups - customer lead time
- make-to-order - flow time
Why Study OM?
 Make desirable trade-offs between competing
objectives

High

Shorter waiting times,

but more resource idle time

Responsiveness

Current position
Longer waiting times,
on the frontier
yet resources are more
fully utilized

Low
Low Resource Productivity High
Tradeoffs
 Redesign operations to improve performance
along multiple dimensions simultaneously

High

Redesign

Responsiveness
process

Current frontier New frontier

In the industry

Low

Low Resource Productivity High

 Profit 4% Profit
21% Logistics
Cost
 Logistics Cost
Marketing
27% Cost
 Marketing Cost

 Manufacturing Cost 48% Manufacturing

Cost
Course Evaluation
 One Group Assignment – 20%
 Two Quizzes – 40%
 End Term – 40%
 Office hours – days before class, 3-4 PM
 Course expectations
– Attendance policy
– Make up

8
 9

Product they Manufacture

• Die to stamp out large exterior auto doors
10
 11

Commonalities
 12

Comparison and Trade-offs in the Three Companies

Capital Lifetime Overtime
Number/Technology Y (High fixed costs) Y Y (low fixed, high
of machines variable)

Demand strategy Chases, flexible Demand > two shifts Chase

capacity capacity is outsourced/
refused (low flex)
Employee Turnover Hire and fire Retain and grow (High 70 hr week, 12 hr shift,
(Low commitment, commitment, innovation, Low morale, high
innovation, and and knowledge transfer) turnover
Knowledge transfer)
Raw material Blank (short supply Casting Casting
lead time; high cost)
Type of employee Experienced Apprenticeship (grows Inexperienced, short-
hiring employees) term money oriented

Customer base Auto + Aircraft Auto Auto

Response Time 30 hrs (from blank to 12 Weeks to procure a >12 Weeks to procure a
FG) casting casting
Performance Speed Innovation, quality, Cost, volume flexibility
objective and employee morale
 13

What does it mean for our course?

• If throughput time is the measure then
• What are the manufacturing operations principles for minimizing throughput times?

• If cost is the measure then

• What are the manufacturing operations principles for minimizing costs?

• If quality is the measure then

• What are the manufacturing operations principles for maximizing quality?
Process Performance Metrics
Resources Market Demand for Products

Manufacturing
Process

Raw Materials needed for production

 Why is it so difficult to manage production?
• Too many discouraging causes
– Low feasibility to be rectified
– Requires heavy investment
– Requires lots of time
• Suppose these are NOT the main causes
• Identify the main cause
• Hopefully, the main cause is not discouraging
 Simulation (Sessions 8 and 9)
• Paradise environment
• All resources well trained and disciplined
• Quality is perfect
• Each process is under control
• Machines never break down
• Vendors are extremely reliable
• Clients don’t change their minds
 Most common way of managing
• Plan ahead
• Yet plan goes awry 2-3 days down the line
• Run it based on what should be done NOW
– This machine is idle, put it to use
– This raw material is missing, buy it now
– That machine is overproducing, stop it now
• Original plans have limited life
• Too many course corrections – expediting

• Not all customer orders shipped on time

 Guiding principles most commonly followed
• If wasting cost is bad, managers try to control cost
• If throughput is essential, managers try to protect throughput
• How to control cost?
– Good department performance helps control cost
• How to protect throughput?
– Good plant performance helps protect throughput
 Guiding principles most commonly followed
• Managers try to have good departmental performance
Resources Market Demand for Products

Manufacturing
Process

Raw Materials needed for production

 Guiding principles most commonly followed
• Managers try to have good departmental performance
– “Blue resource is idle, move it here. Cyan resource is idle, move it
there.”
• Managers try to have good plant performance
Resources Market Demand for Products

Manufacturing
Process

Raw Materials needed for production

 Guiding principles most commonly followed
• Managers try to have good departmental performance
– “Blue resource is idle, move it here. Cyan resource is idle, move it
there.”
• Managers try to have good plant performance
– “We have units waiting to be shipped. Where is cyan resource that
can help finish and ship them?”
 What are ways to have good departmental
performance?

• Efficiency syndrome
– If a worker/machine is idle, find work for him/it!
– Top management intervenes if efficiencies are too low
• What happens to a plant manager, his workers, if he registers 70% utilization
– Setups increase/decrease efficiencies?
– Large production batch size
 Understanding setup time and effect on capacity
Setup time = 5 hrs

Car Chassis Paint Shop

Greater the batch size, greater is the
Batch size = 1
capacity
1 hr to paint car
1 car comes out every 6 hours
Capacity = 1/6 cars per hour Lower is the per unit cost

Greater is the efficiency (setup time does

Setup time = 5 hrs not contribution to efficiency, it takes
away from it)
Car Chassis Paint Shop
Batch size = 2
1 hr to paint car
4 car comes out every (5+2) + (5+2) = 14 hours
Capacity = 4/14 cars per hour
 Effects
• Material is released ahead of time to supply work
• Common parts are diverted to supply work
Resources Market Demand for Products

Manufacturing
Process

Raw Materials needed for production

 Effects
• Material is released ahead of time to supply work
• Common parts are diverted to supply work
• More setups, more cost per unit
• Large batches
– Queues increase
– Inventory increases
• Production lead time is too long
• Throughput suffers!
• “What do you mean spending 5 hours on a setup and then producing for
only 1 hour?”
• Machines are more loaded even if there are no orders because you make
to forecast
 Effects
• If throughput suffers and machines are loaded,
what does management do?
• Buy more machines
– With more machines and efficiency syndrome, more
inventory and more throughput suffering!
• Striving for high efficiencies on nonbottleneck
machines = higher inventory
• If throughput is good and machines are NOT
loaded, how is your department perceived?
 Cost world and the throughput world
• An organization is a chain of links
• Each link consumes cost
• Total cost of organization = sum total of each link’s
cost
• Analogy: Cost = weight
• If you reduce weight of one link, weight of entire
chain comes down by that exact amount

Good global results = sum of good local results

 Cost world and the throughput world
• Throughput achieved by performance of no
individual link, but entire chain
• Throughput of organization ≠ sum of throughput of
individual departments
• If one department drops the ball, what happens to
throughput?
• Analogy: Throughput = strength
• If one link breaks, the entire chain breaks
• Focus on weakest link!
Good global results ≠ sum of good local results
 End of month syndrome
• At start, department performance is dominant
• Over Time not approved.
• Towards end, work weekends, expedite, get goods out of door.
• Throughput consideration dominates
 Thinking in a throughput world

Capacity: 20 / hr Capacity: 10 / hr

Efficiency/Utilization Efficiency/Utilization

50% 100%

What happens to departments that report less than 100% utilization?

 Can this reduce

EOQ thinking operating expenses?

Save setup cost Increase batch

per unit size

Save cost per

unit

Save carrying Decrease batch

cost per unit size
Are you solving the right problem?
If not, what are the right problems
to solve?
How is lead time and
throughput improved
by smaller batch sizes?
 Don’t turn a Increase batch
nonbottleneck size
into bottleneck

Run production
effectively

Decrease batch
size
 Understanding setup time and effect on capacity
Setup time = 5 hrs

Car Chassis Paint Shop

Greater the batch size, greater is the
Batch size = 1
capacity
1 hr to paint car
1 car comes out every 6 hours
Capacity = 1/6 cars per hour Lower is the per unit cost

Greater is the efficiency (setup time does

Setup time = 5 hrs not contribution to efficiency, it takes
away from it)
Car Chassis Paint Shop
Batch size = 2
1 hr to paint car
4 car comes out every (5+2) + (5+2) = 14 hours
Capacity = 4/14 cars per hour
 Don’t turn a Increase batch
nonbottleneck size
into bottleneck

Run production
effectively

Reduce
Decrease batch
production lead
size
time
 Understanding setup time and effect on capacity
Setup time = 5 hrs

Car Chassis Paint Shop

Greater the batch size, greater is the
Batch size = 1
capacity
1 hr to paint car
1 car comes out every 6 hours
Capacity = 1/6 cars per hour Lower is the per unit cost

Greater is the efficiency (setup time does

Setup time = 5 hrs not contribution to efficiency, it takes
away from it)
Car Chassis Paint Shop
Batch size = 2
1 hr to paint car
4 car comes out every (5+2) + (5+2) = 14 hours
Capacity = 4/14 cars per hour
 Don’t turn a Increase process
nonbottleneck batch size
into bottleneck

Run production
effectively

Reduce Decrease
production lead transfer batch
time size
 Time t = 0

Process batch – 5 Process batch – 2

Transfer batch – 3
Transfer batch – 3
 Time t = 1

Process batch – 5 Process batch – 2

Transfer batch – 3
Transfer batch – 3
 Time t = 2

Process batch – 5 Process batch – 2

Transfer batch – 3
Transfer batch – 3
 Time t = 3

Process batch – 5 Process batch – 2

Transfer batch – 3
Transfer batch – 3
 Time t = 3+

Process batch – 5 Process batch – 2

Transfer batch – 3
Transfer batch – 3
 Time t = 3++

Process batch – 5 Process batch – 2

Transfer batch – 3
Transfer batch – 3
 Time t = 4

Process batch – 5 Process batch – 2

Transfer batch – 3
Transfer batch – 3
 Time t = 5

Process batch – 5 Process batch – 2

Transfer batch – 3
Transfer batch – 3
 Time t = 6

Process batch – 5 Process batch – 2

Transfer batch – 3
Transfer batch – 3
 Time t = 6+

Process batch – 5 Process batch – 2

Transfer batch – 3
Transfer batch – 3
 Time t = 6++

Process batch – 5 Process batch – 2

Transfer batch – 3
Transfer batch – 3
 Time t = 7

Process batch – 5 Process batch – 2

Transfer batch – 3
Transfer batch – 3
 Time t = 7+

Process batch – 5 Process batch – 2

Transfer batch – 3
Transfer batch – 3