Operations Chapter 6

In the assemble-to-order environment, a primary task is to define a customer's order in terms of alternative components and options since it is these components that are carried in inventory.

- A good example is the way Dell Computer makes its laptop computers. The number of combinations that can be made may be nearly infinite. - One of the capabilities required for success in the assemble-to-order environment is an engineering design that enables as much flexibility as possible in combining components, options, and modules into finished products. - Many assemble-to-order companies have applied lean manufacturing principles to dramatically decrease the time required to assemble finished goods. By doing so, they are delivering customers' orders so quickly that they appear to be make-to-stock firms from the perspective of the customer.

Manufacturing Cell Design Layout

- A manufacturing cell is formed by allocating dissimilar machines to cells that are designed to work on products that have similar shapes and processing requirements. - Manufacturing cells are widely used in metal fabricating, computer chip manufacture, and assembly work. - The process used to develop a manufacturing cell can be broken into 3 steps: 1. Group parts into families that can follow a common sequence of steps. This requires classifying parts by using some type of coding system. 2. Dominant flow patterns are identifies for each part family. This will be used as the basis for reallocating equipment to the manufacturing cells. 3. Machines and associated processes are physically regrouped into cells. Often, there will be parts that cannot be associated with a family and specialized machinery that cannot be placed in any single cell because of its general use. These unattached parts and machinery are placed in a "remainder cell".

Inventory Turn

- A measure of the expected number of times inventory is replaced over a year. - This provides a relative measure that has some comparability, at least across similar firms. - For 2 similar consumer products manufacturers, an inventory turn of six times per year is certainly much better than a firm turning inventory 2 times per year.

Days of supply

- A measure of the number of days of supply of an item. - Inverse of inventory turn scaled to days. - Ex: F a firm turns inventory 6 times per year, the days of supply is equal to 1/6 times per year x 365 days = 60.8 days.

Assembly-Line and Continuous Process Layouts

- An assembly line is a layout design for the special purpose of building a product by going through a progressive set of steps. - The assembly steps are done in areas referred to as "stations", and typically the stations are linked by some form of material handling device. In addition, usually there is some form of pacing by which the amount of time allowed at each station is managed. - A continuous or flow process is similar to an assembly line except that the product continuously moves through the process. Often, the item being produced by the continuous process is a liquid or chemical that actually "flows" through the system. A gasoline refinery is a good example of a flow process.

Make-to-stock process Map

- As seen in the photo, material is purchased from a set of suppliers and initially staged in raw material inventory. The material is used in a manufacturing process where the product is fabricated. After fabrication, the product is put into finished goods inventory, and from here it is shipped according to orders received from customers.

Positioning Inventory in the Supply Chains

- Depending on the strategy of the firm, the capabilities of manufacturing, and the needs of customers, these activities are organized to minimize cost while meeting the competitive priorities necessary to attract customer orders.

Customer order decoupling point

- Determines where inventory is positioned in the supply chain to allow processes or entities in the supply chain to operate independently. - Ex: If a product is stocked at a retailer, the customer pulls the item from the shelf and the manufacturer never sees a customer order. Inventory acts as a buffer to separate the customer from the manufacturing process. - Selection of decoupling points is a strategic decision that determines customer lead times and can greatly impact inventory investment. The closer this point is to the customer, the quicker the customer can be served.

The essential issue in satisfying customers in the make-to-stock environment is to balance the level of finished inventory against the level of service to the customer.

- Examples of products produced by these firms include televisions, clothing, and packaged food products. - Providing more inventory increases costs, so a trade-off between the costs of the inventory and the level of customer service must be made. - The trade-off can be improved by better estimates (or knowledge) of customer demand, by more rapid transportation alternatives, by speedier production, and by more flexible manufacturing. - Many make-to-stock firms invest in lean manufacturing programs in order to achieve higher service levels for a given inventory investment. - Regardless of the trade-offs involved, the focus in the make-to-stock environment is on providing finished goods where and when the customers want them.

Project Layout

- For large or massive products produced in a specific location, labor, material, and equipment are moved TO the product rather than vice versa. - Ex: Construction sites (houses and bridges) and movie shooting lots. - Areas on the site will be designated for various purposes, such as material staging, subassembly construction, site access for heavy equipment, and a management area.

Project Layout Design

- In developing a project layout, visualize the product as the hub of a wheel, with materials and equipment arranged concentrically around the production point in the order of use and movement difficulty. - Thus, in building commercial aircraft, for example, rivets used throughout construction would be placed close to or in the fuselage; heavy engine parts, which must travel to the fuselage only once, would be placed at a more distant location; and craned would be set up close to the fuselage because of their constant use. - In a project layout, a high degree of task ordering is common.

Little's Law is actually much more general than a simple way to convert between units.

- It can be applied to single workstations, multistep production lines, factories, or even entire supply chains. - Further, it applies to processes with variability in the arrival rate (or demand rate) and processing time. - It can be applied to single or multiple product systems. - It even applies to non-production systems where inventory represents people, financial orders, or other entities.

In the make-to-order and engineer-to-order environments, the customer order decoupling point could be in either raw materials at the manufacturing site or possibly even with the supplier inventory.

- Rather than inventory, the emphasis in these environments may be more toward managing the capacity of critical resources, such as engineering and construction crews. - Example of make-to-order: Boeing's process for making commercial aircraft. - Example of engineer-to-order: Lockheed Martin's space division.

What are possible ways that we may be able to reduce task time?

- Split the task - Share the task - Use parallel workstations - Use a more skilled worker - Work overtime - Redesign

Work-center Layout Design

- The most common approach to developing this type of layout is to arrange work centers in a way that optimizes the movement of material. - Examples include a workcenter for drilling holes, one for performing grinding operations, and a painting area. - The workcenters in a low-volume toy factory might consist of shipping and receiving, plastic molding and stamping, metal forming, sewing, and painting.

When assembling to order, there are significant advantages from moving the customer order decoupling point from finished goods to components.

- The number of finished products is usually substantially greater than the number of components that are combined to produce the finished product. -If Ni is the number of alternatives for component i, the total number of combinations of n components is:

The high-level view of what is required to make something can be divided into 3 simple steps:

1. Sourcing the parts we need. 2. Actually making them. 3. Sending the item to the customer.

A simplified way of thinking about material in a process is that it is in one to two states.

1. Where material is moving or "in-transit". In this first state, material is moving in the process. This is material that is in-transit between entities in the process. Ex: Between the vendor and the raw material inventory at the manufacturer. 2. The second state is material that is sitting in inventory and acting as a "buffer" waiting to be used. In the second state, material is held in a storage area and waits until it is needed. In the case of raw material inventory, the need is dependent on the factory usage of the item. This buffer inventory allows different entities in the process to operate relatively independently.

Little's Law Ex.

20,000 units divided by 1,000 units per day is 20 days. We can also take inventory and divide by flow time and get throughput rate. Here, 20,000 units divided by 20 days is equal to 1,000 units per day. This conversion is useful when diagnosing a plant's performance.

Product-Process Matrix

A framework depicting when the different production types are typically used, depending on product volume and how standardized the product is.

Continuous Process

A process that converts raw materials into finished product in one continuous process. Conversion and processing of undifferentiated materials such as petroleum, chemicals, and drugs are good examples.

Work Center (job shop)

A process with great flexibility to produce a variety of products, typically at lower volume levels. A part being worked on travels, according to the established sequence of operations, from work center to work center, where the proper machines are located for each operation.

Engineer-to-order firm

An engineer to order firm will work the with customer to design the product, and then make it from purchased materials, parts, and components.

Typically, there is a trade-off where quicker response to customer demand comes at the expense of greater ivnentory investment because finished goods inventory is more expensive than raw material inventory.

An item in finished goods inventory typically contains all the raw materials needed to produce the item. So, from a cost view, it includes the cost of the material plus the cost to fabricate the finished item.

Assembly line

Area where an item is produced through a fixed sequence of workstations, designed to achieve a specific production rate. Ex; The assembly of toys, appliances, and automobiles. These are typically used in high-volume items where the specialized process can be justified.

Step 5 in balancing assembly line

Assign tasks, one at a time, to the first workstation until the sum of the task times is equal to the workstation cycle time or no other tasks are feasible because of time or sequence restrictions.

Manufacturing Cell

Dedicated area where a group of similar products are produced. These cells are designed to perform a specific set of processes, and the cells are dedicated to a limited range of products. A firm may have many different cells in a production area, each set up to produce a single product or a similar group of products efficiently, but typically at lower volume levels. These cells typically are scheduled to produce "as needed" in response to current customer demand.

Step 2 in balancing assembly line

Determine the required workstation cycle time (C) using the formula: C = production time per day / required output per day (in units)

Step 3 in balancing assembly line

Determine the theoretical minimum number of work stations required to satisfy the workstation cycle time constraint using the formula: N = sum of task times (T) / Cycle time

Step 6 in balancing assembly line

Evaluate the efficiency of the balanced derived using the formula: Efficiency = Sum of task times (T) / (actual number of workstations X workstation cycle time)

Make-to-Stock firms

Firms that service customers from finished goods inventory are known as make-to-stock firms (a production environment where the customer is served "on-demand" from finished goods inventory).

Flexible and U-Shaped Line layouts

Flexible line layouts such as those shown below are a common way of dealing with unequal workstation times. In our toy company example, the U-Shaped line with work-sharing at the bottom of the figure could help resolve the imbalance.

Little's Law

Mathematically relates inventory, throughput, and flow time. This law says there is a long-term relationship between the inventory, throughput, and flow time of a production system in steady state. The relationship is Inventory = throughput rate x flow time.

EX: Car Batteries: An automobile company assembles cars in a plant and purchases batteries from a vendor in China. The average cost of each battery is $45. The automobile company takes ownership of the batteries when they arrive at the plant. It takes exactly 12 hours to make a car in the plant, and the plant assembles 200 cars per 8-hour shift (currently, the plant operates one shift per day). Each car uses one battery. The company holds, on average, 8,000 batteries in raw material inventory at the plant as a buffer. Assignment: Find the total number of batteries in the plant on average (in work-in-process at the plant and in raw material inventory). How much are these batteries worth? How many days of supply are held in raw material inventory on average?

SOLUTION: We can split this into 2 inventories: work-in-process and raw material. For work-in-process, Little's Law can be directly applied to find the amount of work-in-process inventory: Inventory = Throughput x Flow Time. Throughput is the production rate of the plant, 200 cars per 8-hour shift or 25 cars per hour. Since we use one battery per car, our throughput rate for the batteries is 25 per hour. Flow time is 12 hours, so the work-in-process is: Work-in-process Inventory = 25 batteries/hour x 12 hours = 300 batteries We know from the problem that there are 8,000 batteries in raw material inventory, so the total number of batteries in the pipeline on average is: Total inventory = 8,000 + 300 = 8,300 batteries These batteries are worth 8300 x $45 = $373500 The days of supply in raw material inventory is equal to the "flow time" for a battery in raw material inventory (or the average amount of time that a battery spends in raw material inventory). Here, we need to assume that the batteries are used in the same order they arrive. Rearrange our Little's Law formula to: Flow time = Inventory / Throughput. So, flow time = 8000 batteries / (200 batteries/day) = 40 days, which represents a 40-day supply of inventory.

Step 4 in balancing assembly line

Select a primary rule by which tasks are to be assigned to workstations and a secondary rule to break ties. Ex: the primary rule might be the longest task time, and the secondary rule, the task with the longest number of following tasks.

Step 1 in balancing assembly line

Specify the sequential relationships among tasks using a precedence diagram. The diagram consists of circles and arrows. Circles represent individual tasks, arrows indicate the order of task performance.

Throughput Rate

The average rate (e.g., units/day) that items flow through a process.

Assembly line balancing

The problem of assigning tasks to a series of workstations so that the required cycle time is met and idle time is minimized.

Precedence relationships

The required order in which tasks must be performed in an assembly process.

The total work to be performed at a workstation is equal to?

The sum of the tasks assigned to that workstation.

Workstation Cycle Time

The time between successive units coming off the end of an assembly line.

Flow time

The time it takes one unit to completely flow through a process.

Lead Time

The time needed to respond to a customer order.

Total average value of inventory

The total investment in inventory at the firm, which includes raw materials, work in process, and finished goods. This is commonly tracked in accounting systems and reported in the firm's financial statements.

Assemble-to-order firms

Those that combine a number of preassembled modules to meet a customer's specifications are called assemble-to-order firms (a production environment where preassembled components, subassemblies, and modules are put together in response to a specific customer order).

Make-to-order firms

Those that make the customer's product from raw materials, parts, and components are make-to-order firms (a production environment where the product is built directly from raw materials and components in response to a specific customer order).

Lean Manufacturing

the production of goods using less of everything compared to mass production. Term used to refer to the set of concepts relating to JIT and TQC