IE6201: Manufacturing Systems
Spring 2015
Instructor: Spyros Reveliotis
e-mail: spyros@isye.gatech.edu
homepage: www.isye.gatech.edu/~spyros
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“Course Logistics”
My Office Hours: MW 3:00-4:00pm or by appointment
Course TA: ???
Course Prerequisites: ISYE 6650 and ISYE 6669
Grading policy:
– Homework: 10%
– Projects: 5% (based on Littlefield technologies: please, make sure
that you buy from the bookstore the necessary permit for accessing
the software - $18.00 (?) )
– Midterm I: 25%
– Midterm II: 25%
– Final: 35%
– 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.
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).
Reading Assignment
Chapter 0, 6 and 1 from your textbook
Our abstraction of the Production System
• Production System: A transformation process (physical,
locational, physiological, intellectual, etc.)
Inputs
•Materials
•Capital
•Labor
•Manag. Res.
Outputs
Organization
•Goods
•Services
• The production system as a process network
Stage 1
Stage 2
Stage 4
Suppliers
Stage 3
Stage 5
Customers
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 around to 10% lately!
Major Productivity Variables and their
contribution to productivity increase
• Labor
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–
–
–
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
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
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
Examples (borrowed from Heizer & Render)
Fit Between Corporate and Functional
Strategies (Chopra & Meindl)
Corporate Competitive Strategy
Product
Development
Strategy
Supply Chain
or Operations
Strategy
Information Technology Strategy
Finance Strategy
Human Resources Strategy
Marketing
and Sales
Strategy
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.
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.
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)
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
The operations frontier, trade-offs,
and the operational effectiveness
Responsiveness
Cost Leadership
Differentiation
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
Strategy and Issues during a Product’s Life
(J. Heizer & B. Render, “Operations Management”, Prentice Hall)
Introduction
• Best period to
increase market
share
•R&D engineering
critical
Growth
•Practical to
change price or
quality image
•Strengthen
niche
Maturity
•Poor time to change
image, price or
quality
•Competitive costs
become critical
•Defend market
position
Decline
•Cost control
critical
Sales
Time
• Frequent product
and process
changes
•Short production
runs
•High production
costs
•Limited models
•Attention to
quality
•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
•Little product
differentiation
•Overcapacity in
the industry
•Reduce capacity
and eventually
prune line to
eliminate items not
returning good
margin
The primary “drivers” for achieving
strategic fit in Operations Strategy
(adapted from Chopra & Meindl)
Corporate Strategy
Operations Strategy
Efficiency
Facilities
Responsiveness
Inventory
Transportation
Information
Market
Segmentation
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
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•
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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
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.
The role of Transportation
• Transportation: The SC element that moves product between its different
stages.
• Primary decisions:
– Mode(s) of Transportation
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•
•
•
•
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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
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
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–
–
–
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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.
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
Course Outline
• 1. Inventory Control Theory
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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
Course Outline
• 3. Integrating the Factory Physics insights to the OM practice
– Process Design, Capacity Planning and Line Balancing
– Hierarchical Production Planning
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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
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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