Supply Chain Management Principles LB 5: Manufacturing and Service Operations Overview

LB Objectives Understand the significance of Manufacturing & Sales Operations (M&SO) in the supply chain process Explain the difference between manufacturing and sales service operations Discuss product life cycles Identify three different types of operational decisions Recognize the role of quality LO1

Manufacturing & Sales Operations (M&SO) The supply chain element of manufacturing and service operations is accountable for management, resources, and processes that provide saleable products and services Manufacturing operations apply labor, materials, and equipment to produce tangible items Service Operations apply labor, tools and equipment, including spare parts to provide a service that is not tangible and cannot be placed in inventory M&SO is a critical link in the supply chain and is dependent on demand planning, procurement, inventory management, and warehouse operations LO2

What is a process? A process is a set of individual activities that are combined to produce products and services Manufacturing routing – The overall process plan to make an item based on several individual processes Manufacturing routing consists of: Inputs; Outputs; Controls; Resources Example: Routing for baking cookies: Inputs = Ingredients; Outputs = Cookies Controls = Recipe; Resources = Oven & labor LO1

Process Structures Product-process matrix – Has five process structures used to plan product outputs Project Process – High variety and low volume with few products made e.g. custom homes Job Shop Process – Medium-to-low-volume and medium-to-high variety such as auto repair shops Batch Process – Medium volume and medium variety, such as bakeries Repetitive Process – High-volume and medium-to-low variety, such as automotive assembly Continuous Process – High volume and low variety, such as bottling factories LO1

Product Life Cycles Product life cycle - Progression of manufactured goods Businesses change and adapt their operational capabilities based on the 4 segments or phases of the product life cycle: Introduction – Involves months and years of market evaluation, product designs, testing, packaging & SCM Growth – Product sales expand. Changes to design, manufacturing processes & quality evolve to maximize revenue stream. Supply chain & manufacturing is monitored Maturity – Product demand is stable. Focus on cost reduction, efficiency & competition Decline – Attempt to keep customers interested LO2

Product Life Cycle The time for each phase can vary dramatically Smartphones move from introduction to decline in months Cereals – demand stabilizes when the product matures Operations managers use product life cycle information to plan and adapt supply chain processes LO2

Manufacturing & Service Operations (M&SO) M&SO manages the process by which inputs are converted to provide a product or service In the U.S., more people work for service-providing companies than for manufacturing companies Output of manufacturing operations is tangible and can be placed in inventory Output of service operations is not tangible and cannot be placed in inventory Service operations include automotive technicians and repair personnel Manufacturing and service operations are not always separate. They can be used together to provide products and services to end users LO3

Independent and Dependent Demand Finished goods that are sold are known as independent demand. The demand is created outside the company Independent demand creates demand for additional finished goods to be manufactured which creates dependent demand for raw materials Bill of Materials (BOM) – lists the dependent demand parts and components required to assemble the final product The BOM is often used by repair technicians in the service industry to troubleshoot defective parts LO1

Defining How Products Are Sold Production approaches are used to align production with customer expectations Engineer-to-order (ETO): Long lead times, high customization and expensive. Orders are placed in advance (Project or shop). Design begins after order is placed Make-to-order (MTO): Larger class of customers with customization. Pre-ordered products. Most design is complete with parts in inventory LO5

Defining How Products Are Sold Assemble-to-order (ATO): Assembled from standardized parts. Options for buyers to customize the products. Repetitive process structure Make-to-stock (MTS): Goods are mass produced to be kept in inventory. Demand forecast is used to estimate production requirements e.g. products in the mature stage. Repetitive and continuous process is used e.g. books, patio furniture, & clothing LO5

Defining How Services Are Offered Service operations (car wash, repair shop) require interaction with the customer. Service types: Service Factory: Low labor costs, low customization, low customer interaction e.g. hotels, trucking companies, & airlines. Customer Traits: Price-shopping Service Shop: Low labor costs, high customization and high customer interaction e.g. auto repair shops Issues for operations managers: Staying current with technology and scheduling LO5

Defining How Products Are Sold Mass Service: High labor costs, lower customization and lower customer interaction e.g. retail banks. Operations managers focus on improving service times and automation Professional Service: High labor costs. High customization and high customer interaction. E.g. accountants, consultants, doctors and lawyers. These service providers are highly educated and provide services that are time consuming. LO5

Manufacturing and Service Quality Organizations invest tremendous resources on product quality The Malcolm Baldrige Quality Award is a national award that recognizes superior quality and performance excellence. It is presented by the National Institute for Standards and Technology Total Quality Management (TQM) refers to designing processes that produce consistent quality Six Sigma enhances process output quality by identifying reasons for poor product output LO5