1. Introduction to Production Management

2. Outline Introduction to production planning
Definition and classification of production systems
Decisions and performance measure for production systems.
Product and process life cycle concepts
Goods vs. services and their shares in the Economy.
Changing challenges in production management
Productivity

3. Essential functions in any organization
Marketing – generates demand
Production/Manufacturing/operations – creates the product
Finance/accounting – tracks how well the organization is doing, pays bills, collects the money

4. Organizational Charts
Figure 1.1

5. Options for Increasing Contribution
MARKETING OPTION
FINANCE /ACCOUNTING OPTION
PROD. MAN. OPTION
CURRENT
INCREASE SALES REVENUE 50%
REDUCE FINANCE COSTS 50%
REDUCE PRODUCTION COSTS 20%
Sales
$100,000
$150,000
Cost of goods
–80,000
–120,000
–64,000
Gross margin
20,000
30,000
36,000
Finance costs
–6,000
–3,000
Subtotal
14,000
24,000
17,000
Taxes at 25%
–3,500
–4,200
–7,500
Contribution
$ 10,500
$ 18,000
$ 12,750
$ 22,500
Focusing on cost reduction through better operations management is important!

6. Production/Manufacturing
Production/manufacturing is the process of converting raw materials or semi-finished products into finished products that have value in the market place.
This process involves the contribution of labor, equipment, energy, and information.

7. The Production System Production System Raw materials
Finished products
Energy
Labor
Scrap
Equipment
Waste
Information

8. Inventory
Inventory is both an input and output of the production process. Inventory can be in the form of raw materials, semi-finished, and finished products.

9. The Inventory System
Supply source
Demand source
Inventory

10. The Production-Inventory System
Raw materials
Suppliers
Fabrication
Component parts
inventory
Assembly
Finished goods inventory
Distribution
and sales

11. The Supply Chain Assembly/ Manufacturing 1st tier suppliers
2nd tier suppliers
Distribution
centers
Retailers

12. Supply Chain Management
Supply Chain Management (SCM) is the set of functions concerned with the effective utilization of limited resources that may reside with one or more independent firms and the management of material, information, and financial flows within and between these firms, so as to satisfy customer demands and create profits for all firms.
Check out: WalMart,7 eleven Japan, vendor managed inventory, Collaborative forecasting and replenishment planning

13. Production Planning and Inventory Control
Production planning and inventory control is the subset of SCM functions that focus on managing production operations and inventory throughout the supply chain.

14. Examples of Decisions in Production Systems
What should we produce, how much, and when (forecasting)?
How much can we produce (capacity planning)?
How much components/finished goods do we have and how much do we need (inventory management)?
When should we produce and using which resoursces (production planning and scheduling)?

15. Decision Analysis Techniques
Strategic
Tactical
Operational
Purpose
Plan acquisition of resources
Plan utilization of resources
Execution of resources
Time horizon
2+ years
6 to 24 months
1-6 months
Time period
Months
Days/weeks
Level
Top management
Middle management
Plant management
Questions addressed
What products/Levels
Plant sizes/capacities
Plant/warehouse locations
What technologies?
Inventory levels
Production rates
Work force sizing
Subcontracting
Batch sizes
Job scheduling
Material control
Machine maintenance
Analysis techniques
Production economics
Break-even analysis
LP product mix
Distribution models
Long range forecasting
Location analysis
Forecasting
Aggregate planning
Production smoothing
Inventory models
Facility layout
Make or buy decisions
Project planning
Task sequencing
Assembly line balancing
Shift scheduling
Worker assignments
MRP/JIT (Kanban)
Group technology
transfer lines

16. Examples of Performance Measures
Cost (are products being created at minimum or acceptable cost?)
Quality (what are the specifications of the products? What percentages of shipped products meet specification?)
Variety (how many types of products are - or can be – simultaneously produced?)
Service (how long does it take to fulfill a customer order? how often are quoted lead times met?)

17. Examples of Performance Measures (continued…)
Flexibility (how quickly can existing resources be reconfigured to produce new products?)
Worker satisfaction (are workers and managers throughout the supply chain happy and motivated?)
Safety (are work environments safe for workers and the surrounding community?)
Environmental impact (how environmentally friendly are the supply chain processes and the products?)

18. Income = Revenue - Expenses
Company Objectives
Income = Revenue - Expenses
Need to increase income with:
Best customer service and marketing
Lowest production costs (labor, material, energy etc.)
Lowest inventory investment
Lowest distribution costs

19. Conflicts in Traditional Systems
Figure 1.3 Conflicting Objectives

20. Hierarchical Objectives
high profits
low costs high sales
low unit quality high customer
costs product service
high high low fast many
throughput utilization inventory response products
less short
variability cycle
times
high more
inventory variability
low utilization

21. Classification of the Production Process
Production quantity
Mass production
Batch production
Job shop production

22. Classification of the Production Process
Production quantity
Mass production
Batch production
Job shop production
Product variety

23. Classification of the Production Process
Production quantity
Mass production
Batch production
Job shop production
Product variety
Single product or product line
Family of similar products
One-of-a-kind products

24. Mass Production Systems

25. Mass Production Systems
Low product variety
High production volumes
Specialized labor
Dedicated equipment
High reconfiguration costs
Make-to-stock production
Example; Sugar production, Automobile assembly lines

26. Batch Production Systems

27. Batch Production Systems
Medium product variety
Products are made in larger lots
Products are made to stock
Programmable/reconfigurable equipment
Significant setup costs
Example: Apparel or Pharmaceuticals production

28. Job Shops

29. Job Shops High product variety Products are made in small lots
Products are made to order
Flexible equipment and labor
Small setups
Example; Metal parts or PCBs production

30. Classification of Production Systems (continued…)
Order fulfillment

31. Classification of Production Systems (continued…)
Order fulfillment
Make-to-stock systems (MTS)
Make-to-order systems (MTO)
Hybrid MTO/MTS

32. Classification of Production Systems (continued…)
Order fulfillment
Make-to-stock systems (MTS)
Make-to-order systems (MTO)
Hybrid MTO/MTS
Resource configuration

33. Classification of Production Systems (continued…)
Order fulfillment
Make-to-stock systems (MTS)
Make-to-order systems (MTO)
Hybrid MTO/MTS
Resource configuration
Product layout
Process layout
Cellular layout
Fixed position layout

34. Product layout
Product layouts are found in flow shops (all product follows the same sequence of operations. Repetitive assembly and process or continuous flow industries).
Flow shops produce high-volume, highly standardized products that require highly standardized, repetitive processes.
In a product layout, resources are arranged sequentially, based on the routing of the products.
Two types of lines are used in product layouts: paced (moving) and unpaced.

35. Product layout

36. Process Layout
Process layouts are found primarily in job shops, or firms that produce customized, low-volume products that may require different processing requirements and sequences of operations.
Process layouts are facility configurations in which operations of a similar nature or function are grouped together.
Their purpose is to process goods or provide services that involve a variety of processing requirements.
Example; A machine shop; general-purpose machines are grouped together by function (e.g., milling, grinding, drilling, hydraulic presses, and lathes)

37. Process Layout

38. Cellular Layout
Cellular manufacturing is a type of layout where machines are grouped according to the process requirements for a set of similar items (part families) that require similar processing.
These groups are called cells.
A cellular layout is an equipment layout configured to support cellular manufacturing.

39. Cellular Layout

40. Fixed position layout
A fixed-position layout is appropriate for a product that is too large or too heavy to move.
Fixed-position layout examples include construction (e.g., buildings, dams, and electric or nuclear power plants), shipbuilding, aircraft, aerospace, farming, drilling for oil, home repair, and automated car washes
For services, other reasons may dictate the fixed position (e.g., a hospital operating room where doctors, nurses, and medical equipment are brought to the patient).

41. Fixed position layout

42. Classification of Production Systems (continued…)
Inputs/outputs

43. Classification of Production Systems (continued…)
Inputs/outputs
Discrete production systems (discrete inputs and outputs - cars, computers, machine tools, etc)
Continuous production systems (continuous inputs and outputs - chemicals, textiles, food processing, pharmaceuticals)
Hybrid systems (Discrete inputs/continuous outputs or continuous inputs/discrete outputs - steel, plastics, recycling)

44. Manufacturing Strategies
More stable demand
More quantity
Less customer involvement in design
Less variety
Less lead time
Manufacturing strategy and lead time
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed.

45. Manufacturing Strategies
Engineer-to-order
Customer’s requirements determines the design of the product. High customization
Normally no inventory is held
Long lead time (includes design lead time)
Example: Manufacturing of special purpose machines
Make-to-order
Manufacturing starts after the customer orders
Mixture of standard products and custom designed products
Inventory is mostly in the form of raw material
Shorter lead time than engineer-to-order
Manufacturing of a meal in a restourant

46. Manufacturing Strategies
Assemble-to-order
Product is made from standard components
Delivery lead time is further reduced
Inventory is held as components
Customer only selects component options.
Example: Car assembly plants
Make-to-stock
No customer involvement in product design.
Manufacturer satisfies demand from a finished good inventory.
Production is planned based on inventory levels. Demand is quite stable and the per unit cost of product is low.
Example: Diaper/paper towel production

47. The Product Life-Cycle

49. The Product Life-Cycle
Demand for new products goes trough an identifiable cycle called product life cycle
Start-up
Market for the product developed,High manufacturing cost, Design problems corrected,Low competiton
Rapid growth
Demand picks up quickly, standardization in manufacturing and cost reduction, competition starts. Right pricing strategies to establish the product in the market

50. The Product Life-Cycle
Maturation
Demand stabilizes, management should protect and improve market share and brand loyalty through competitive pricing, focus on cost reduction.
Stabilization or decline
Market gets saturated by the competitiors and/or product becomes obsolete. Reduced investment in promotions and new manufacturing technologies

51. The Product and Process Life Cycle
Manufacturing Cost
Automation, economies of scale and learning effects

52. Product-Process Matrix
High Volume,
High
Standard-
ization
Low
Volume,
One of a
Kind
Multiple
Products,
Low
Volume
Few Major
Products,
Higher
Volume
Flexibility (High)
Unit Cost (High)
Metal parts produced in machining shop
Job Shop-
Jumbled flow
Batch-
Disconnected
line flow
Apparel
Pharmaceuticals
Assembly Line-
Connected line flow
Automobile
Assembly
Burger King
Mass production
Continuous
Flow
Sugar
Refinery
Paper towel
Flexibility (Low)
Unit Cost (Low)
Nahmias (2009)
Is your product maching your process? Are you in the diagonal? 13

53. Product-Process Matrix
High Volume,
High
Standard-
ization
Low
Volume,
One of a
Kind
Multiple
Products,
Low
Volume
Few Major
Products,
Higher
Volume
Statr-up Phase
Flexibility (High)
Unit Cost (High)
Metal parts produced in machining shop
Job Shop-
Jumbled flow
Batch-
Disconnected
line flow
Apparel
Pharmaceuticals
Mature Phase
Assembly Line-
Connected line flow
Automobile
Assembly
Burger King
Mass production
Continuous
Flow
Sugar
Refinery
Paper towel
Flexibility (Low)
Unit Cost (Low)
Nahmias (2009)
Is your product maching your process? Are you in the diagonal? 13

54. Differences Between Goods and Services
CHARACTERISTICS OF SERVICES
CHARACTERISTICS OF GOODS
Intangible: Ride in an airline seat
Tangible: The seat itself
Produced and consumed simultaneously: Beauty salon produces a haircut that is consumed as it is produced
Product can usually be kept in inventory (beauty care products)
Unique: Your investments and medical care are unique
Similar products produced (iPods)
High customer interaction: Often what the customer is paying for (consulting, education)
Limited customer involvement in production
Inconsistent product definition: Auto Insurance changes with age and type of car
Product standardized (iPhone)
Often knowledge based: Legal, education, and medical services are hard to automate
Standard tangible product tends to make automation feasible
Services dispersed: Service may occur at retail store, local office, house call, or via internet.
Product typically produced at a fixed facility
Quality may be hard to evaluate: Consulting, education, and medical services
Many aspects of quality for tangible products are easy to evaluate (strength of a bolt)
Reselling is unusual: Musical concert or medical care
Product often has some residual value

55. Goods and Services as a mix
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
Percent of Product that is a Good Percent of Product that is a Service
100% %
| | | | | | | | |

56. U.S. Agriculture, Manufacturing, and Service Employment
Figure 1.5
100 –
80 –
60 –
40 –
20 –
0 –
Percent of Workforce
1800
1825
1850
1875
1900
1925
1950
1975
2000
2025 (est.) |
Agriculture Services Manufacturing

57. Manufacturing Employment and Production
40 –
30 –
20 –
10 –
0 –
| | | | | | |
(est)
– 150
– 125
– 100
– 75
– 50
– 25
– 0
Employment (millions)
Index: 1997 = 100
Industrial production
(right scale)
Manufacturing employment
(left scale)
Figure 1.4 (B)

58. Industry and Services as Percentage of GDP
Australia
Canada
China
Czech Rep
France
Germany
Hong Kong
Japan
Mexico
Russian Fed
South Africa
Spain UK US
90 −
80 −
70 −
60 −
50 −
40 −
30 −
20 −
10 −
0 −
Services
Manufacturing

59. Development of the Service Economy
United States
Canada
France
Italy
Britain
Japan
W. Germany
(est)
| | | | |
Percent
Figure 1.4 (C) 59

60. Service sector in Turkey
Hizmet Sektörü, Türkiye’de istihdam açısından en fazla çalışanın olduğu alandı. Bu alanda 2008 yılı Mart ayı TÜİK rakamlarına göre istihdam edilmiş olan toplam kişinin toplam ’i, yani istihdamdaki nüfusun % 49,4’ü çalışıyordu.
1998 temel fiyatlarına göre sabit fiyatlarla sektörlerin GSYH’ya katkısı açısından Hizmet Sektörü 2007 yılında % 56,90’lık bir oranla en büyük paya sahipti. Yani Hizmet Sektörü hem istihdam açısından, hem de ekonomideki katkı payı açısından Türkiye ekonomisinde en önemli yere sahipti. (*2)

61. Changing Challenges in Production Management
Traditional Approach
Reasons for Change
Current Challenge
Ethics and regulations not at the forefront
Public concern over pollution, corruption, child labor, etc.
High ethical and social responsibility; increased legal and professional standards
Local or national focus
Growth of reliable, low cost communication and transportation
Global focus, international collaboration
Lengthy product development
Shorter life cycles; growth of global communication; CAD, Internet
Rapid product development; design collaboration
Figure 1.5

62. Changing Challenges Traditional Approach Reasons for Change
Current Challenge
Low cost production, with little concern for environment; free resources (air, water) ignored
Public sensitivity to environment; ISO standard; increasing disposal costs
Environmentally sensitive production; green manufacturing; sustainability
Low-cost standardized products
Rise of consumerism; increased wealth; individualism
Mass customization
Figure 1.5

63. Changing Challenges Traditional Approach Reasons for Change
Current Challenge
Emphasis on specialized, often manual tasks
Recognition of the employee's total contribution; knowledge society
Empowered employees; enriched jobs
“In-house” production focus; low-bid purchasing
Rapid technological change; increasing competitive forces
Supply-chain partnering; joint ventures, alliances
Large lot production
Shorter product life cycles; increasing need to reduce inventory
Just-In-Time performance; lean; continuous improvement
Figure 1.5

64. Productivity Challenge
Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital)
The objective of all production managers is to improve productivity
High productivity is the source of high living standards in the developed countries.

65. Labor, Capital, Management
The Economic System
Inputs
Labor, Capital, Management
Transformation
The U.S. economic system transforms inputs to outputs at about an annual 2.5% increase in productivity per year. The productivity increase is the result of a mix of capital (38% of 2.5%), labor (10% of 2.5%), and management (52% of 2.5%).
Outputs
Goods and services
Feedback loop
Figure 1.6

66. Improving Productivity at Starbucks
A team of 10 analysts continually look for ways to shave time. Some improvements:
Stop requiring signatures on credit card purchases under $25
Saved 8 seconds per transaction
Change the size of the ice scoop
Saved 14 seconds per drink
New espresso machines
Saved 12 seconds per shot

67. Improving Productivity at Starbucks
A team of 10 analysts continually look for ways to shave time. Some improvements:
Operations improvements have helped Starbucks increase yearly revenue per outlet by $250,000 to $1,000,000 in seven years.
Productivity has improved by 27%, or about 4.5% per year.
Stop requiring signatures on credit card purchases under $25
Saved 8 seconds per transaction
Change the size of the ice scoop
Saved 14 seconds per drink
New espresso machines
Saved 12 seconds per shot

68. Productivity Units produced Input used Productivity =
Measure of process improvement
Represents output relative to input
Only through productivity increases can our standard of living improve

69. Productivity Calculations
Labor Productivity
Productivity =
Units produced
Labor-hours used
= = 4 units/labor-hour
1,000
250
One resource input - single-factor productivity

70. Multi-Factor Productivity
Output
Labor + Material + Energy + Capital + Miscellaneous
Productivity =
- Also known as total factor productivity
- Output and inputs are often expressed in dollars
Multiple resource inputs - multi-factor productivity

71. Labor statistic in 2011 Turkey vs Europe

72. Labor productivity in 2011 Turkey vs Europe

73. Labor productivity in 2011 Turkey vs Europe
Productivity in firms with different employer sizes

74. Collins Title Company
The company has a staff of 4, each working 8 hours per day (for a payroll cost of $640/day) and overhead expenses of $400 per day. Collins processes and closes on 8 titles each day.
The company recently purchased a computerized title-search system that will allow the processing of 14 titles per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now $800 per day.

75. Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
8 titles/day
32 labor-hrs =
Old labor productivity

76. Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
8 titles/day
32 labor-hrs =
Old labor productivity
= .25 titles/labor-hr

77. Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day
32 labor-hrs
14 titles/day Overhead = $800/day
New System:
8 titles/day
32 labor-hrs =
Old labor productivity
= .25 titles/labor-hr =
New labor productivity

78. Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
32 labor-hrs =
Old labor productivity
= .25 titles/labor-hr
14 titles/day
32 labor-hrs =
New labor productivity
= titles/labor-hr
75% increase

79. Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
8 titles/day $
14 titles/day Overhead = $800/day
New System: =
Old multifactor productivity

80. Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day $ =
Old multifactor productivity
= titles/dollar

81. Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
14 titles/day $
8 titles/day $ =
Old multifactor productivity
= titles/dollar =
New multifactor productivity
75% increase

82. Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day $ =
Old multifactor productivity
= titles/dollar
14 titles/day $ =
New multifactor productivity
= titles/dollar
26% increase

83. Example; Go-cart produvtivity
Upton üretim şirketi go-cart tekerlekleri üretmektedir. Şirket aşağıdaki kaynakları kullanarak günde 1000 adet üretim yapmaktadır;
İşçilik saat/gün, Saatlik işçilik ücreti 12,5 $/saat
Hammadde pound/gün,
Pound başına maliyet 1 $/pound
Enerji $/gün
Sermaye maliyeti $/gün

84. a. Şirketin işçilik saati başına iş gücü verimliliği nedir?
b. Şirketin çok faktörlü verimliliği nedir?
c. Şirket diğer girdileri ve üretim çıktısını etkilemeden enerji faturasını 1000$ azaltırsa çok faktörlü verimlilikteki yüzde değişim ne olur?

87. Measurement problems in productivity
Quality may change while the quantity of inputs and outputs remains constant
External elements may cause an increase or decrease in productivity
3. Precise units of measure may be lacking. (Not all automobiles require the same inputs)
4. Measuring productivity in service sector is difficult.

88. Relevant Societies to Production Management (US)
Institute of Industrial and Systems Engineers
APICS, the American Production and Inventory Control Society
Council of Supply Chain Management Professionals
American Society of Quality (ASQ)
Institute for Supply Management (ISM)
Project Management Institute (PMI)
Charter Institute of Purchasing and Supply (CIPS)

89. HW1 Forecasting Advanced production planning Lean manufacturing
1. Read an article on one of the following topics (or on any topic related to production management) and summarize your understanding (no more than a page and a half, phont size 12, spacing 1,5 lines). Make sure that article is written after The article should be a none-technical type. Submit both your summary and a copy of the article. Check out the magazines of the societies listed before .
Forecasting
Advanced production planning
Lean manufacturing
Mass customization and an application
Collaborative forecasting and replenishment planning
Inventory management
Capacity planning
Sustainable Manufacturing

90. Product life cycle and strategy
Supply chain management in Walmart or in Seveneleven Japan
Business Analytics
Customer relationship management
Assemble to order systems
Production activity control
Lot sizing in manufacturing
Single minute exchange of dies
Toyota production system
Or on another topic related to production management

91. HW1
2. Consider following three products and comment on the production system characteristics, its layout type, and manufacturing strategy (use internet to search for the production processes);
Arçelik high-end dishwasher manufacturing
Custom designed bikes
Diaper manufacturing

92. 3. Fill in the blanks (read two relevant document in course website)
Production is ___________
Mass production system is appropriate if ___
We work in make to order mode for products that __
Cell is a group of ______
Supply chain management is about finding win-win scenarios between __________ . SCM is all about ________________
Engineer to order systems has the higest _______
For products with ______________________ make-to-stock mode is appropriate.

93. As we move from starp-up pahse to mature phase in a product life cycle, our process can move from _____________ type to ________________ type process.
In developed economies, approximately ___________________ of economy is in service sector and this ration is about ________ in Turkey
Matching production capacity and demand is difficult in service sector since we can not _________________________
The main reason for the big difference in labor productivity between Turkey and European countries is __ _______________________________________________
Most important challenge facing production managers today is _____________________________________