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Production Systems

Chapter 9

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Chapter 9 Objectives

After studying this chapter, you will be able to:

• Explain the systems perspective and identify seven principles of systems thinking that can improve your skills as a manager.

• Describe the value chain and value web concepts and discuss the controversy over offshoring.

• Define supply chain management and explain its strategic importance.

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Chapter 9 Objectives Cont.

• Identify the major planning decisions in production and operations management.

• Explain the unique challenges of service delivery.

• Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

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The Systems View of Business

A system is an interconnected and coordinated set of elements and processes that converts inputs into desired outputs.

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Managing Systems for Peak Performance

• Help everyone see the big picture.

• Understand how individual systems really work and how they interact.

• Understand problems before you try to fix them.

• Understand the potential impact of solutions before you implement them.

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• Don’t just move problems around; solve them.

• Understand how feedback works in the system.

• Use mistakes as opportunities to learn and improve.

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Managing Systems for Peak Performance (cont.)

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The Conversion Process

TransformationTransformation OutputsOutputsInputsInputs

The Value Chain

TangibleGoods

IntangibleServices

Value Chain:All the elements and processes that add value as raw materials are transformed into the final products made available to the ultimate customer.

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Business Transformation Systems

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Core Competencies and Outsourcing

Core Competencies: Functions in which a

company has a distinct advantage over its

competitors.

Outsourcing: Contracting out certain

business functions or operations to other

companies.

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Value Webs

The combination of extensive globalization in many industries and the development of electronic networking has made it easy for companies to connect with partners around the world.

Instead of linear value chain, some businesses now think in terms of value webs, multidimensional networks of suppliers and outsourcing partners.

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• Responsibility to shareholder interests

• U.S. competitiveness

• Support for local customers around the world9-11

Support of Offshoring

OffshoringOffshoring: Transferring a part or all of a business function to a facility (a different part of the company or another company entirely) in another country.

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• What jobs will be left?

• Hidden costs and risks

• Responsiveness

• Knowledge transfer and theft

• National security concerns

• Health and safety issues9-12

Concerns Regarding Offshoring

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Supply Chain Management

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Manage RisksManage Risks

ManageRelationships

ManageRelationships

ManageTrade-offs

ManageTrade-offs

Supply Chain: A set of connected systems that coordinates the flow of goods and materials from suppliers all the way through to final customers.

Supply Chain Management (SCM):The business procedures, policies, and computer systems that integrate the various elements of the supply chain into a cohesive system.

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Supply Chain vs. Value Chain

Supply Chain

• Part of the overall Value Chain

• Focuses on “upstream” process

Value Chain

• Everyone is part of the Value Chain

• Focuses on the “downstream” process

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Supply Chain Systems and Techniques

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Materials Requirement

Planning (MRP)

Materials Requirement

Planning (MRP)

ManufacturingResource

Planning (MRP II)

ManufacturingResource

Planning (MRP II)

EnterpriseResource

Planning (ERP)

EnterpriseResource

Planning (ERP)

Inventory: Goods and materials kept in stock for production or sale.

Inventory Control: Determining the right quantities of supplies and products to have on hand and tracking where those items are.

Procurement:The acquisition of the raw materials, parts, components, supplies, and finished products required to produce goods and services.

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Material Requirements Planning (MRP)

MRP helps a manufacturer get the correct materials where they are needed, when they are needed, without unnecessary stockpiling.

Managers use MRP software to calculate when certain materials will be required, when they should be ordered, and when they should be delivered so that storage costs will be minimal.

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Manufacturing Resource Planning (MRP II)

MRP II expands the MRP with links to the company’s financial systems and other processes.

For instance, in addition to managing inventory levels successfully, an MRP II system can help ensure that material costs adhere to target budgets.

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Enterprise Resource Planning (ERP)

ERP extends the scope of research

planning even further to encompass the

entire organization.

ERP systems are typically made up of

software modules that address the needs of

the various functional areas, from

manufacturing to sales to human resources.

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Production

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TransformationTransformation OutputsOutputsInputsInputs

Operations Managers

Facilities Location and Design

Forecasting andCapacity Planning

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Facilities Location and Design

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Energy

Transportation

Land

Living Standards

Construction

RawMaterials

Local Taxes

Labor

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Forecasting and Capacity Planning

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Level ofResourcesLevel of

Resources

CustomerDemand

CustomerDemand

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Production Scheduling

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GANTT Chart

ID Task Name Start Date End Date DurationAugust September

2012

1 Make legs 8/1/12 8/28/12 20d

2 Cut tops 8/22/12 8/28/12 5d

3 Drill 8/29/12 9/4/12 5d

4 Sand 9/5/12 9/11/12 5d

5 Assemble 9/12/12 9/25/12 10d

6 Paint 9/19/12 9/25/12 5d

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Simplified PERT Diagram for Store Opening

Critical Path:In a PERT network diagram, the sequence of operations that requires the longest time to complete.

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Lean Systems

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Productivity: The efficiency with which an organization can convert inputs to outputs.

Lean Systems: Systems (in manufacturing and other functional areas) that maximize productivity by reducing waste and delays.

Just-in-Time (JIT): Inventory management in which goods and materials are delivered throughout the production process right before they are needed.

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Manufacturing Goods

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Mass Production

Mass Production

CustomizedProduction

CustomizedProduction

MassCustomization

MassCustomization

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Mass production—manufacturing goods in

large quantities—means little or no customization.

Because of the high volume of similar goods

produced, this process reduces production costs

per unit and makes products available to more

people.

Mass Production

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The other extreme is customized production,

sometimes called batch-of-one production in

manufacturing, in which the producer creates a

unique good or service for each customer.

Customized Production

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Mass customization—using mass production

techniques to produce customized goods.

The basic idea behind mass customization is

that consumers have individual needs and are

best served by products that can be easily

customized for them.

Mass Customization

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Unique Challenges of Service Delivery

• Perishability

• Location Constraints

• Scalability Challenges and Opportunities

• Performance Variability and Perceptions of Quality

• Customer Involvement and Provider Interaction

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Product and Process Quality

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Quality: The degree to which a product or process meets reasonable or agreed-upon expectations.

Quality Control: Measuring quality against established standards after the good or service has been produced and weeding out any defective products.

Quality Assurance: A more comprehensive approach of companywide policies, practices, and procedures to ensure that every product meets quality standards.

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Product and Process Quality

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Statistical Process Control (SPC):The use of random sampling and tools such as control charts to monitor the production process.

KaizenCompanies can empower each employee to continuously improve the quality of goods production or service delivery. The Japanese word for continuous improvement is kaizen.

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Total Quality Management (TQM)

• Management commitment to supporting TQM at every level in the organization

• Clear focus on customers and their needs

• Employee involvement throughout the organization

• Commitment to continuous improvement

• Willingness to treat suppliers as partners

• Meaningful performance measurements9-33

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The DMAIC Process in Six Sigma Quality Management

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D

M

AI

C

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Global Quality Standards

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ISO 9000(Quality and

customer Satisfaction)

ISO 9000(Quality and

customer Satisfaction)

ISO 14000(Environmental

İssues)

ISO 14000(Environmental

İssues)

Applying What You’ve Learned

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1. Explain the systems perspective and identify seven principles of systems thinking that can improve your skills as a manager

2. Describe the value chain and value web concepts and discuss the controversy over offshoring

3. Define supply chain management and explain its strategic importance

Applying What You’ve Learned

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4. Identify the major planning decisions in production and operations management

5. Explain the unique challenges of service delivery

6. Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality