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 Changing challenges in production management Goods vs. services and their shares in the Economy. Productivity

3. Essential functions in any organization 1.Marketing 1.Marketing – generates demand 2.Production/Manufacturing/operations 2.Production/Manufacturing/operations – creates the product 3.Finance/accounting 3.Finance/accounting – tracks how well the organization is doing, pays bills, collects the money

4. 4 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.

5. 5 The Production System Production System Raw materials Energy Labor Equipment Information Finished products Scrap Waste

6. 6 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.

7. 7 The Inventory System Supply sourceDemand source Inventory

8. 8 The Production-Inventory System Raw materials Suppliers Fabrication Component parts inventory Assembly Finished goods inventory Distribution and sales

9. 9 The Supply Chain 2nd tier suppliers 1st tier suppliers Assembly/ Manufacturing Distribution centers Retailers

10. 10 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.

11. 11 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.

12. 12 Examples of Decisions

13. 13 Examples of Decisions  What should we produce, how much, and when (forecasting)?  How much can we produce (capacity planning)?  How much do we have and how much do we need (inventory management)?  When should we produce (production planning and scheduling)?

14. 14 Examples of Performance Measures

15. 15  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?) Examples of Performance Measures

16. 16  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?) Examples of Performance Measures (continued…)

17. 17 Classification of the Production Process  Production quantity

18. Significant Events in production Management

19. 19 Classification of the Production Process  Production quantity –Mass production –Batch production –Job shop production

20. 20 Classification of the Production Process  Production quantity –Mass production –Batch production –Job shop production  Product variety

21. 21 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

22. 22 Mass Production Systems

23. 23 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

24. 24 Batch Production Systems

25. 25 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

26. 26 Job Shops

27. 27 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

28. 28 Classification of Production Systems (continued…)  Order fulfillment

29. 29 Classification of Production Systems (continued…)  Order fulfillment – Make-to-stock systems (MTS) – Make-to-order systems (MTO) – Hybrid MTO/MTS

30. 30 Classification of Production Systems (continued…)  Order fulfillment – Make-to-stock systems (MTS) – Make-to-order systems (MTO) – Hybrid MTO/MTS  Resource configuration

31. 31 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

32. Product layout Product layouts are found in flow shops (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.

33. Product layout

34. 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)

35. Process Layout

36. 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.Cellular manufacturing These groups are called cells. A cellular layout is an equipment layout configured to support cellular manufacturing.

37. Cellular Layout

38. 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).

39. Fixed position layout

40. 40 Classification of Production Systems (continued…)  Inputs/outputs

41. 41 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)

42. Continuous Flow Assembly Line Batch Job Shop Low Volume, One of a Kind Multiple Products, Low Volume Few Major Products, Higher Volume High Volume, High Standard- ization PCBs, Metal parts Apparel Pharmaceuticals Automobile Assembly Burger King Sugar Refinery Flexibility (High) Unit Cost (High) Flexibility (Low) Unit Cost (Low) Product-Process Matrix Nahmias (2009) Mass production

43. Manufacturing Strategies Manufacturing strategy and lead time Arnold, Chapman, & Clive: Intro Materials Management, 6 th ed.

44. 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

45. 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. –Example: Diaper/paper towel production

46. 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

47. 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 14000 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

48. 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

49. The Product Life-Cycle

50. 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 The Product Life-Cycle

51. –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

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

54. Characteristics of Goods Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction

55. Characteristics of Service Intangible product Produced and consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed

56. Goods and Services 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 GoodPercent of Product that is a Service 100%7550250255075100% |||||||||

57. 120 – 100 – 80 – 60 – 40 – 20 – 0 – ||||||| 1950197019902010 (est) 196019802000 Employment (millions) Manufacturing and Service Employment Figure 1.4 (A) Manufacturing Service

58. Manufacturing Employment and Production Figure 1.4 (B) 40 – 30 – 20 – 10 – 0 – ||||||| 1950197019902010 (est) 196019802000 150 – 150 125 – 125 100 – 100 75 – 75 50 – 50 25 – 25 0 – 0 Employment (millions) Index: 1997 = 100 Index: 1997 = 100 Manufacturing employment (left scale) Industrial production (right scale)

59. Industry and Services as Percentage of GDP Services Manufacturing 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 −

60. Development of the Service Economy Figure 1.4 (C) United States Canada France Italy Britain Japan W. Germany 19702010 (est) ||||| 4050607080 Percent

61. 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 20.752.000 kişinin toplam 10.258.000’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) http://sey.ydicagri.org/pdfs/sey_III_hizmetler.pdf

62. 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.

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

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

65. 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

66. 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.

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

68. 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

69. 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 = New labor productivity =.25 titles/labor-hr 14 titles/day 32 labor-hrs

70. 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 =.4375 titles/labor-hr 75% increase

71. 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: = Old multifactor productivity 8 titles/day $640 + 400

72. 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 $640 + 400 = Old multifactor productivity =.0077 titles/dollar

73. 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 $640 + 400 = Old multifactor productivity = New multifactor productivity =.0077 titles/dollar 14 titles/day $640 + 800 75% increase

74. 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 $640 + 400 14 titles/day $640 + 800 = Old multifactor productivity = New multifactor productivity =.0077 titles/dollar =.0097 titles/dollar 26% increase

75. Measurement problems in productivity 1.Quality 1.Quality may change while the quantity of inputs and outputs remains constant 2.External elements 2.External elements may cause an increase or decrease in productivity 3. Precise units 3. Precise units of measure may be lacking. (Not all automobiles require the same inputs) 4. productivity in service 4. Measuring productivity in service sector is difficult.

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

77. HW1 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). Make sure that article is written after 2005. 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. 1.Forecasting 2.Advanced production planning 3.Lean manufacturing 4.Mass customization and an application 5.Collaborative forecasting and replenishment planning 6.Inventory management 7.Capacity planning 8.Sustainable Manufacturing 9.Product life cycle and strategy 10.Supply chain management in Walmart or in Seveneleven Japan 11.Business Analytics 12.Customer relationship management 13.Assemble to order systems 14.Production activity control 15.Lot sizing in manufacturing

78. HW1 For the following products, describe briefly what kind of production system (i.e. Mass, batch, jobshop, MTO, MTS, inventory, lead time, manufacturing strategy) fits best –Ipod, ovens with some custom designed features, standard but expensive wood carving machine with high demand variability, printed circuit boards for differen needs that change from a customer to the next, contruction of a university building.