CHAPTER 5: Manufacturing
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Overview of manufacturing
•
•
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The quality imperative
Manufacturing perspective
Manufacturing strategy
Contemporary
manufacturing
developments
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The 8 dimensions of 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
• Perceived Quality
– Based on customer’s experience
before, during and after they
purchase a product
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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
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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
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ISO certified suppliers are frequently
preferred by procurement departments
• 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
• 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
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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
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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
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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
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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
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The choice of strategy determines which
performance cycles the customer experiences
Product Design
Procurement Cycle
Manufacturing Cycle
Customer Delivery
Cycle
MTP
Strategy
ATO
Strategy
MTO
Strategy
ETO
Strategy
Total Cycle Experienced by Customers.
Figure 5.1 Manufacturing Strategy and Performance Cycles
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Table 5.1
Manufacturing process characteristics
Job Shop
Batch
Product
Variety
Very high
High
Limited
Line Flow
Continuous Very limited
Flow
Volume
Strategy
Very low
Low
ETO/MTO
ETO/MTO/
ATO
ATO/MTP
MTP
High
Very high
Customer
Leadtime
Very long
Long
Short
Very short
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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
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TCM per unit ranging across strategic
alternatives
/MTS
Figure 5.2 Total Cost of Manufacturing
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Contemporary manufacturing developments
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•
•
•
•
•
•
Mass customization
Flexible manufacturing
Lean systems
Six sigma
Requirements planning
Design-for-manufacture
Design-for-logistics
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Manufacturing characterizations
Flexibility Economies of scale
Responsiveness
Engineer to
Order (ETO)
Make to Order
(MTO)
Assemble to
Order (ATO)
Configure to
Order (CTO)
Make to Stock
(MTS)
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Flexibility-based strategies
• Flexibility strategy defines the role that operations
plays in the business and overall supply chain
strategy
• Four Competitive Strategies
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–
–
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Mass Customization
Fast Lean Launch
Volume Response
Robust Operation
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Manufacturing capability examples
• Mass Customization
• Fast, Lean Launch
• Mix/Volume Response
• Robust Operations
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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
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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
Delivered Cost (or Lead-Time)
Conventional Demand-Supply Chain
MC Demand-Supply Chain
Standard
Custom
Product Customization
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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
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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
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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
Lean Launch
Production rate
Conventional Launch
Time
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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
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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
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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
Unit Cost, OTD, etc
Delivered Cost (or Lead-Time)
Conventional Demand-Supply Chain
Responsive Demand-Supply Chain
Standard
Custom
Conventional Demand-Supply Chain
Responsive Demand-Supply Chain
Production Volume
Product Customization
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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
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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
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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
Unit Cost, Defects, etc
Conventional Demand-Supply Chain
Robust Demand-Supply Chain
Supply Variability
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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
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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
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Comparative manufacturing models
Mass
Customization
Fast Lean
Launch
Mix/Volume
Response
Robust
Operations
Engineer to
Order
Make to
Order
Assemble to
Order
Configure to
Order
Make to
Stock
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Lean systems
• 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”
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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
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Six sigma 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
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Example of a six sigma quality level
Three sigma quality level
• Produces defect free product
99.74 percent of the time
• 66,807 defects per million parts
produced
Six sigma quality level
• Produces defect free product
99.99966 percent of the time
• 3.4 defects per million parts
produced
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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
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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!
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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)
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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.
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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
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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
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Table 5.2 - Strategic integration
framework
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