CHAPTER 5:

Manufacturing

McGraw-Hill/Irwin

Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Overview of manufacturing

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 customers 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
TQMs 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 9000International Quality Standard
First one established in 1994
Currently transitioning to ISO 9000:2008

ISO 14000International 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
Cycle

Manufacturing Cycle

Customer Delivery

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

Volume

Strategy

Customer
Leadtime

Very high
High

Very low
Low

ETO/MTO
ETO/MTO/
ATO

Very long
Long

High
Very high

ATO/MTP
MTP

Short
Very short

Line Flow
Limited
Continuous Very limited
Flow

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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

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
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 well 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
Designlaunchbuild 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

Conventional Demand-Supply Chain

Responsive Demand-Supply Chain

Standard

Custom

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, online 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: Kelloggs, 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
products 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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