1. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 1 Factory Physics? Perfection of means and confusion of goals seem to characterize our age. – Albert Einstein

2. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 2 What is Factory Physics? Quantitative Tools: probability queueing models optimization Operations Management: inventory management shop floor control (MRP, JIT) scheduling, aggregate planning capacity management Manufacturing Principles: characterize fundamental logistical behavior facilitate better management by working with, instead of against, natural tendencies

3. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 3 Why Study Factory Physics? Ideal: sophisticated technology Reality: blizzard of buzzwords Lack of System automation information technology control methods gurus JIT ERP TQM BPR FMS OPT MBO benchmarking

4. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 4 Can’t Rely on Benchmarking Leader Follower Benchmarking can result in an increasing gap in performance when standard is accelerating.

5. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 5 Need for a Science of Manufacturing Goals rationalize buzzwords recognize commonalties across environments accelerate learning curve Perspective basics intuition synthesis Practices change, but principles persist!

6. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 6 Scope of Factory Physics Process Line System

7. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 7 Factory Physics Definition: A manufacturing system is a network of processes through which parts flow and whose purpose is to generate profit now and in the future. Structure: Plant is made up of routings (lines), which in turn are made up of processes. Focus: Factory Physics is concerned with the network and flows at the routing (line) level.

8. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 8 Conclusions Factory Physics is: a set of manufacturing principles tools for identifying leverage in existing systems a framework for designing more effective new systems still being developed…

9. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 9 Manufacturing Matters! Watch the costs and the profits will take care of themselves. – Andrew Carnegie

10. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 10 Conventional Wisdom Popular View: We are merely shifting to a service economy, the same way we shifted from an agrarian economy to a manufacturing economy. Interpretation: Shift was good because it substituted high productivity/high paying (manufacturing) jobs for low productivity/low paid (agriculture) jobs. Statistic: 1929 — agriculture employed 29% of workforce 1985 — it employs 3%

11. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 11 Problems with Conventional Wisdom Offshoring: Agriculture never shifted offshore in a manner analogous to manufacturing jobs shifting overseas. Automation: Actually, we automated agriculture resulting in an enormous improvement in productivity. But the production stayed here. Measurement: 3% figure (roughly 3 million jobs) is by SIC But, this does not include crop duster pilots, vets, etc.

12. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 12 Tight Linkages Economist View: linkages should not be considered when evaluating an industry, since all of the economy is interconnected. Problem: this ignores tight linkages: Many of the 1.7 million food processing jobs (SIC 2011-99) would be lost if agriculture went away. Other jobs (vets, crop dusters, tractor repairmen, mortgage appraisers, fertilizer salesmen, blight insurers, agronomists, chemists, truckers, shuckers, …) would also be lost. Would we have developed the world’s largest agricultural machinery industry in the absence of the world’s largest agricultural sector?

13. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 13 Tight Linkages (cont.) Statistics: Conservative assumptions – e.g., tractor production does not require domestic market, truckers only considered to first distribution center, no second round multiplier effects (e.g., retail sales to farmers) considered at all. 3-6 million jobs are tightly linked to agriculture. Since agriculture employs 3 million. This means that offshoring agriculture would cost something like 6-8 million jobs.

14. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 14 Direct: Manufacturing directly employs 21 million jobs about 20% of all jobs. down from about 33% in 1953 and declining. Tightly Linked: If same “tight linkage” multiplier as agriculture holds, manufacturing really supports 40-60 million jobs, including many service jobs. Impact: Offshoring manufacturing would lose many of these tightly linked service jobs; automating to improve productivity might not. Linkages Between Manufacturing and Services

15. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 15 Linkages Between Manufacturing and Services (cont.) Services tightly linked to manufacturing: design and engineering services for product and process payroll inventory and accounting services financing and insuring repair and maintenance of plant and machinery training and recruiting testing services and labs industrial waste disposal support services for engineering firms that design and service production equipment trucking firms that move semi-finished goods from plant to plant

16. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 16 Magnitudes Production Side: Manufacturing represents roughly 50% of GNP in terms of production. Manufacturing represents 24% of GNP (directly) Report of the President on the Trade Agreements Program estimates 25% of GNP originates in services used as inputs by goods producing industries. Demand Side: Manufactured goods represent 47% of GNP (services are 33%) in terms of final demand.

17. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 17 Magnitudes (cont.) $64,000 Question: Would half of the economy go away if manufacturing were offshored? some jobs (advertising) could continue with foreign goods lost income due to loss of manufacturing jobs would have a serious indirect multiplier effect lost jobs would put downward pressure on overall wages effect of loss of manufacturing sector on high-tech defense system? Conclusion: A service economy may be a comforting thought in the abstract, but in reality may be an oxymoron.

18. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 18 The Importance of Operations Toyota was far more profitable than Ford in 1979. Costs are a function of operating decisions---planning, design, and execution.

19. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 19 Takeaways A big chunk of the US economy is rooted in manufacturing. Global competition has raised standard for competitiveness. Operations can be of major strategic importance in remaining competitive.

20. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 20 Modeling Matters! I often say that when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind; it may be the beginning of knowledge, but have scarcely, in your thoughts, advanced to the stage of Science, whatever the matter may be. - Lord Kelvin

21. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 21 Why Models? State of world: Data (not information!) overload Reliance on computers Allocation of responsibility (must justify decisions) Decisions and numbers: Decisions are numbers –How many distribution centers do we need? –Capacity of new plant? –No. workers assigned to line? Decisions depend on numbers –Whether to introduce new product? –Make or buy? –Replace MRP with Kanban?

22. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 22 Why Models? (cont.) Data + Model = Information: Managers who don't understand models either: Abhor analysis, lose valuable information, or Put too much trust in analysis, are swayed by stacks of computer output

23. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 23 Goldratt Product Mix Problem Machines A,B,C,D Machines run 2400 min/week fixed expenses of $5000/week PQ

24. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 24 Modeling Goldratt Problem Formulation: Solution Approach: 1. Choose (feasible) production quantity of P (X p ) or Q (X q ). 2. Use remaining capacity to make other product. X p = weekly production of P, X q = weekly production of Q Weekly Profit Time on Machine A Time on Machine B Time on Machine C Time on Machine D Max Sales of P Max Sales of Q

25. Unit Profit Approach Make as much Q as possible because it is highest priced: 25 A B C,D A B

26. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 26 Bottleneck Ratio Approach Consider bottleneck: If we set X p =100, X q =50, we violate capacity constraint Profit/Unit of Bottleneck Resource ($/minute): X p : 45/15 = 3 X q : 60/30 = 2 so make as much P as possible (i.e., set X p =100, since this does not violate any of the capacity constraints): A B C D

27. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 27 Bottleneck Ratio Approach (cont.) Outcome: This turns out to be the best we can do. But will this approach always work? A B C,D

28. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 28 Modified Goldratt Problem Machines A,B,C,D Machines run 2400 min/week fixed expenses of $5000/week PQ D C C A B C B B A D $5$20 25 10 15 5 5 20 15 10 14 Note: only minor changes to times.

29. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 29 Modeling Modified Goldratt Problem Formulation: Solution Approach: bottleneck method. Weekly Profit Time on Machine A Time on Machine B Time on Machine C Time on Machine D Max Sales of P Max Sales of Q

30. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 30 Bottleneck Solution Find Bottleneck: Note: Both B and D are bottlenecks! (Does this seem unrealistic in a world where line balancing is a way of life?) A B C D

31. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 31 Possible Solutions Make as much P as possible: A B C D

32. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 32 Possible Solutions (cont.) Make as much Q as possible: so make X q = 50 (can’t sell more than this) A B C D

33. © Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://factory-physics.com 33 Another Solution Make X p =73, X q =37: (Where in the heck did these come from? A model!) Conclusions: Modeling matters! Beware of simplistic solutions to complex problems! A B C D