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Business Policy & Strategy: Chapter Nine Production Murdick, Moor, Babson & Tomlinson Sixth Edition, 2000
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Production Vs. Productivity Production is the transformation of organizational resources into products. Productivity is how efficient you are at transforming the resources.
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Strategies for increasing Production DETERMINE IF LONG TERM or SHORT TERM DEMAND EXISTS Hire more qualified employees (if long term); add shifts for short term increases or hire temporary workers Training Make products easier to assemble Upgrade equipment/build plants Automation and robotics
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Production/Operations Management Selecting, designing, operating, controlling and updating of production systems. Capacity, location, product, process, layout, and human resources. JIT inventory controls, maintenance, costs, materials, master scheduling and aggregate planning.
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THE BIG IDEA To get out the right quantity of the product at the right time at the lowest cost. For global firms, economies of scale is a primary factor locating near low cost labor, or raw materials.
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Economies of Scale If you increase the volume produced, the fixed costs which are constant are spread over a greater number of units, therefore the total cost per unit drops as you remember that TC=FC+VC. With a lower cost per unit, firms can increase market share by lowering price or increase profits by matching other prices!
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Policies Plant location, additions, renovations Equipment purchases Purchasing policies Transportation costs of raw materials and finished goods should be analyzed Inventory policy for finished goods Quality levels to be maintained
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Typical Production Problems Absenteeism & Turnover Bottlenecks Floor plan Equipment Sales fluctuate Quality
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Typical Production Problems Sales dept. requesting immediate production on items with long lead time Lack of time-studies and methods Special Orders
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Five Major Systems of Analysis Manufacturing Organization Production Planning Production Operation Production Control Relationship with Other Components
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Manufacturing Organization
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Production Planning and Control
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Types of Production Product based- equipment and people are fixed according to operations (old automotive plants) Process based- goods in process transported to proper department.(Employee and machine grouping -petroleum refining) Material based- materials do not move. People and machines brought to work in progress. (e.g. Shaft Nursery Lawn care)
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Checklist for Analysis Demand Plant Equipment Layout Procurement H.R. Methods Maintenance Planning/Scheduling Assigning Work Inventory Control Housekeeping
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Demand Constant, seasonal, irregular Sales forecasts- are they constantly too high or too low? Production Vs. Sales- is production department second guessing the sales department?
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Plant Centralized- to suppliers, market, transportation etc.? Expansion- is there room? Storage- appropriate? Conditions- security, roads, waste etc. Climate- general livability Underutilized? Adequate- in another five years?
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Equipment Specifications Maintenance- periodic, breakdown,continuous Size of maintenance crew/downtime Safety equipped OSHA requirements
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Layout Minimize handling Space utilization efficiency (SUE) Aisle space problems Storage space problems Safety problems Compliance with laws Temperature, light, noise, facilities
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Procurement Minimize inventory levels-holding costs, carrying costs, shortage costs and quantity discounts Lead-time constant and short Control of quality and quantity of incoming supplies Purchase Order Requisition System
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Human Resource Management Clearly stated policies- hiring, layoff, disciplinary action, promotions Turnover rate All employees treated equally Incentive plans
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Work Methods and Measurement Methods developed for each operation Type of measurement employed Union attitude towards methods of measurement
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Maintenance/Replacement Policy for equipment maintenance Records maintained Balanced against downtime
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Production Planning & Scheduling Formal system in place Rush/Priority Orders Smooth Demand Eliminate Bottlenecks Maintain High Productivity
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Assigning/Dispatching Work Assigned in accordance with availability Priorities Indicated Formal system of communication with forepersons
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Controlling Inventories Economic order EOQ Economic runs- just the right amount and time High cost items Consumer returns excessive? Incentive for cost reductions Service level in- house or outsourced?
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Housekeeping Painted regularly Windows and floor cleaned daily Warning signs clear Roads and parking maintained
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