A Presentation on Operations—
Producing Goods
and Services
M.Tariq Yousafzai
ibc208tamu@gmail.com
Learning Objectives
 Discuss the strategic value adding roles
operations play in the supply chain
 Appreciate the tradeoffs and challenges
involved in production operations
 Understand the primary production strategies
 Discuss the primary assembly processes and
production methods for goods creation
 Describe various production process layouts
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Introduction
 Operations focus on the “make/build” portion
of supply chain.
 They focus on production of goods and
services needed to fulfill customer
requirements.
 Involves the transformation of inputs into
outputs that customers demands
 For example Dell
 Hospital?
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Introduction
 In the execution of these processes,
production facilities must interact with supply
chain functions that have been discussed
 Both manufacturers and service providers
need ready access to inventories of key
inputs from their suppliers.
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The Role of Production Operations
in SCM
 Many supply chain and logistics activities
focus on operations—
 Procurement operations that provide access
to materials;
 Transportation operations that supports the
floe of goods;
 Distribution operations that streamline order
fulfillment and so on
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The Role of Production Operations
in SCM continued…
 It takes a great deal of effort and coordination
to run an effective production operation that is
supported by and also supports supply chain
 Consider the success of Apple iPhone. A
great Product design, procurement-assemblysynchronization, and savvy marketing all
contributed to the success of commercial
juggernaut
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Production Process Functionality
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The Production Process funtionality
 No two processes are organized exactly alike or
perform to the same level
 For example Burger King, McDonalds, and Subway
each make sandwiches but have slightly different
product strategies that derive their process design
and assembly methods
 Subway and Burger King (to a lesser extent) offer
assemble-to-order products
 McDonald produces products in anticipation of
demand using standardized product components.
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Production Tradeoffs
 One of the most important issues for supply
chain professional to understand is the
tradeoffs involved within production
operations and between production
operations, other supply chain functions, and
corporate strategy.
 All decisions are interrelated and can impact
costs, productivity, and quality in other areas.
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Common tradeoffs
1. Volume-variety tradeoff is a primary issue in
production.
In situations where production processes have high
fixed costs and equipment like chemical production
and paper manufacturing, it makes sense to use
Volume
 In contrast, processes that can produce a range of
products are said to have economies of scope.
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(2) Responsiveness and efficiency
 Related to production facility decisions
 Centralized production facilities provide
operating cost and inventory efficiencies
 While regional production facilities allow
companies to be closer to customers and
more responsive
 Product focused facility and process focused
facilities
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Total Costs of Manufacturing
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Production tradeoffs continued…
 Make Versus Buy decision
 Whether to conduct your own production operations
or to outsource production to external suppliers.
 Internal production processes are more visible and
easier to control from quality viewpoint
 Outsourced production may lead to lower product
costs and allow the company to focus its resources
on other, more strategic needs.
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Production Challenges
 For example US automobile Industry
 GM and For Needs to compete with Toyota
lean production capabilities, Honda product
quality,, and be responsive to low cost
producers like Hyundai and Kia.
 Henry Ford mass customization is out of
order
 What he said
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Production Strategies
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Lean manufacturing wastes
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Adaptive manufacturing
 The goal of this strategy is to provide
companies with the ability to replace planning
and replanning with execution based on realtime demand.
 In simple words technologies in this process
can enable companies to sense and respond
to exceptions that impact manufacturing
 Limited adoption of this technology
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Assembly Processes
 Products can be built either according to plan
or demand
 MTS
 ATO
 BTO
 ETO
 Each assembly process is appropriate for a
given situation
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Make-to-stock (MTS)
 Traditional Production method where ent-item
products are usually finished before receipt of
a customer order
 Customer orders filled from finished goods
inventories.
 Makes it cost effective and shortens lead time
 Accurate forecasting and inventory control
are critical issues in MTS, and warehousing
of end products is the norm
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ATO Assemble-to-order
 Commences after receipt of order from customer
 The finished product is generally a combination of
standard components and options or accessories
specified by the customer
 In configure-to-order production processes, the
manufacturer or customer selects a base product and
configures all the variable parameters associated
with that product. This is also known as mass
customization process
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BTO (Build/Make-To-Order)
 Delays assembly until a confirmed order is
received (postponement).
 The end item is generally a combination of
standard and custom-designed components
that meet the unique needs of a customer
 It differs from ATO in the higher level of
customization and lower volume level of
production.
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ETO Engineer-to-Order
 Focuses on the creation of highly tailored products
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for customers whose specifications require unique
engineering design or significant customization
No two products are identical
Each order requires detailed cost estimates and
tailored pricing
Long lead times
Raw materials may be stocked but are not
assembled into the finished good until a customer
order is received and the product is designed
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Delayed Differentiation
 Delayed differentiation is one hybrid strategy in which
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a common product platform is built to stock.
It is later differentiated by assigning to it certain
customer-specific features, only after demand is
realized.
Hence manufacturing occurs in two stages
(a) An MTS stage where one or more undifferentiated
platforms are produced and stocked
(b) An ATO stage where product differentiation takes
place in response to specific customer orders
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Production Process Layout
 One of the key drivers of how production
activities will be carried out is facility layout.
 It involves the arrangement of machines,
storage areas, and other resources within the
four walls of a manufacturing or an assembly
facility
 The layout is influenced by the production
strategy and assembly process employed by
organization
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Facility Layout Matrix
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A project layout
 Is a fixed location layout where the product
remains in place for the duration of
production
 Materials and labor are moved to production
 For example
 Home building
 Road construction
 Tunnels etc
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A workcenter
 A process focused layout that groups
together similar equipment and or functions
 The materials move from department to
department for completion of similar activities
and tasks
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Manufacturing cell
 Process focused layout that dedicates production
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areas to narrow range of products that are similar in
processing requirements
Four activities involved in its set up
(1) Identifying families of parts with similar flow paths
(2) Grouping machines to cells based on part families
(3) Arranging cells so material movement is
minimized and
(4) locating large shared machines at the point of use
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Assembly Line
 Product focused layout in which machines
and workers are arranged according to the
progressive sequence of operations need to
make a product.
 Often used for mass production of goods, the
assembly steps are completed at
workstations that are typically linked to
materials handling equipment.
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Continuous Process facilities
 Similar to assembly lines, with a product flowing
through a predetermined sequence of stops.
 The main difference is the continuous, rather than
discrete nature of flow.
 Widely used for high volume products such as
gasoline, paper towels, and soft drink concentrates
 These highly automated, capital intensive facilities
need to run almost nonstop to gain maximum
efficiency
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