Chapter 14 Operations—Producing Goods and

Services
Learning Objectives
 After reading this chapter, you should be able to do the following:
 Discuss the strategic value-adding role operations plays in the
supply chain.
 Explain the concept of a transformation process and its application
to goods and services.
 Appreciate the tradeoffs and challenges involved in production
operations.
 Understand the primary production strategies and types of planning.
 Discuss the primary assembly processes and production methods
for goods creation.
 Describe the various production process layouts.
 Explain the role of productivity and quality metrics for improving
operations performance.
 Know how information technology supports efficient production of
goods and services.
Introduction
 Operations focus on the “make/build” portion of the supply chain.

 Production facilities must interact with supply chain functions.

 Operations create the outputs that are distributed through supply

chain networks.
The Role of Production Operations in Supply Chain Management

 Manufacturing and service production supplies a economic utility called

form utility.

 An effective production operation is supported by and also supports the

supply chain.

 Supply chain tradeoffs must be understood and made.

Production Process Functionality

 No two processes are organized exactly alike or perform to the

same level.

 Process functionality helps the success of an organization.

 Assemble-to-order methods tend to be more complex, be more labor

intensive, and require longer processing time than the mass-
production-oriented, make-to-stock operations.
Production Tradeoffs

 Processes that can produce a range of products are said to have

economies of scope.

 Low-volume production runs of a wide variety of products are required

to meet changing customer demand.

 Tradeoffs between production processes for goods and the costs

involved in manufacturing them must also be understood.

 Production and supply chain costs vary for make-to-stock, assemble-to-

order, and build-to-order products.
Production Challenges

 Intensified competition, more demanding customers, and relentless

pressure for efficiency as well as adaptability

 Competitive pressures for many established manufacturers and service

providers

 Customers’ demand for choice and rapidly changing tastes

Production Strategies

 In the era of mass production, operations strategy focused on reduction,

efficiency, and scale.

 The push-based strategy works well for supply chains that focus on the
immediate delivery of off-the-shelf, low-cost, standardized goods.

 Lean production tries to have materials arrive at the needed location just
in time for rapid processing and flow through the system.

 Lean production relies on pull-based systems to coordinate production

and distribution with actual customer demand.
Production Strategies
 Machine flexibility
general purpose machines and equipment staffed by cross-trained

workers provide the ability to produce different types of products
 Routing flexibility
 provides managers with a choice between machines for a part’s
next operation
 Offshoring
 activity be relocated to a contract manufacturer in another country
 Adaptive manufacturing
 provides companies with the ability to replace planning and
replanning with execution based on real-time demand
Production Planning
 Three planning timeframes:
 Long-range plans
 covering a year or more, focus on major decisions regarding
capacity and aggregate production plans
 Medium-range plans
 span 6 to 18 months and involve tactical decisions regarding
employment levels and similar issues
 Short-range plans
 ranging from a few days to a few weeks
Production Planning
 Resource requirements planning (RRP)
 long-run, macro-level planning tool
 Rough-cut capacity plan (RCCP)
 checks the feasibility of the master production schedule
 Capacity requirements planning (CRP)
 checks the feasibility of the materials requirement plan

 Aggregate production plan (APP)

 long-range materials plan that translates annual business
plans, marketing plans into production plan
 Master production schedule (MPS)
 medium-range plan that is more detailed than the APP
Assembly Processes

 (MTS), make to order

 (ATO), assemble-to-order

 (BTO), build-to-order

 (ETO), engineer-to-order
Production Process Layout
 facility layout
 involves the arrangement of machines, storage areas, and other
resources within the four walls of a manufacturing or an assembly
facility.

 successful layout is one that does the following:

 Reduces bottlenecks in moving people or materials
 Minimizes materials-handling costs
 Reduces hazards to personnel
 Utilizes labor efficiently
 Increases morale and ease of supervision
 Utilizes available space effectively and efficiently
 Provides flexibility
 Facilitates coordination and face-to-face communication
Production Process Layouts
 Project layout
 fixed location layout where the product remains in place for the
duration of production
 Workcenter
 process-focused layout that groups together similar equipment or
functions
 Manufacturing cell
 process-focused layout that dedicates production areas to a narrow
range of products that are similar in processing requirements
 Assembly line
 product-focused layout in which machines and workers are
arranged according to the progressive sequence of operations
 Continuous process facilities
 similar to assembly lines, with product flowing through a
predetermined sequence of stops.
Packaging

 design issues can affect labor and facility efficiency

 can provide another level of product differentiation

 design impacts ability to use space and equipment

 ease of handling during materials handling and transportation

 protecting the goods in the package

Production Metrics

 use of measurements and key performance indicators (KPIs)

 Using KPIs that are too narrow

 Encouraging wrong outcomes

 Focusing on issues that are not key priorities

 should be properly aligned with corporate objectives

Production Metrics
 Total cost
 all money spent on manufacturing must be summarized and the
total compared to the previous period
 Total Cycle Time
 total cycle time is a measure of manufacturing performance that is
calculated by studying major purchased components and
determining the total days on hand of each one
 Delivery performance
 is the percentage of customer orders shipped when the customer
requested them to be shipped
Production Metrics

 Quality
 This may vary by company but it must focus on quality from the
perspective of the customer.
 Safety
 The standard metrics of accident/incident frequency, severity, and
cost are important to monitor, with continuous improvement (i.e.,
reduction) as the goal.
Manufacturing Execution Systems (MES)

 central software used to monitor and control production

operations

 linked to other enterprise tools like ERP systems, product life

cycle management tools, and scheduling and planning systems
Summary
 The key concept from this chapter is the critical and codependent link between
production operations and logistics. Just as a heart and arteries need to work
together to move blood through your circulatory system, production and logistics must
work in concert to move product through the supply chain. For their part, production
managers must coordinate demand information, inputs, and resources to transform
them into outputs (products and materials) that are desired by customers. The faster
and more flexible the transformation processes, the more responsive the production
operation can be to changing conditions and disruptions. This, in turn, makes the
supply chain more dynamic and competitive.

 Additional topics from the chapter include the following:

 Production operations include all activities and processes involved in changing

the composition of a good or service—component fabrication, product assembly,
and service request execution—for the purpose of creating form utility.

 Numerous tradeoffs must be made regarding production: volume versus variety,

responsiveness or efficiency, make or outsource, and focusing on a limited
number of competitive dimensions.

 Intensified competition, more demanding customers, and relentless pressure for

efficiency as well as adaptability are driving significant changes across many
manufacturing industry settings.
Summary (cont.)
 There have been significant development and shifts in production strategy.
Organizations have advanced from forecast-driven mass production to demand-
driven lean, flexible, and adaptive approaches

 Capacity planning and materials planning are used to balance inputs, capacity
(resources), and outputs so that customer demand can be fulfilled without
creating waste.

 Most manufacturers use a combination of four production methods—make-to-

stock, assemble-to-order, build-to-order, and engineer-to-order—to satisfy
demand for their products.

 Facility layout involves the arrangement of machines, storage areas, and other
resources within the four walls of a manufacturing or an assembly facility.

 Facility layout is influenced by the product characteristics, production strategy,

and assembly process employed by the organization.
Summary (cont.)
 Packaging plays important roles in the smooth transfer of finished goods from the
plant to the distribution center and customer locations.

 Production KPIs must be linked to corporate goals and objectives, customer

requirements, and overall performance of the production operation.

 Relevant production KPIs address total cost, total cycle time, delivery
performance, quality, and safety.

 Manufacturing execution systems software solutions improve an organization’s

ability to manage production operations and make them more responsive to
disruptions, challenges, and changing marketplace conditions.