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PRODUCTION AND PRODUCTION AND OPERATIONS OPERATIONS

MANAGEMENTMANAGEMENT

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OBJECTIVESOBJECTIVES

Introduction to Production Function and Introduction to Production Function and Operations ManagementOperations ManagementMass Production ApproachMass Production ApproachToyota Production System (TPS) Toyota Production System (TPS)

ApproachApproachSupply Chain ManagementSupply Chain Management

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PRODUCTIONPRODUCTIONversus versus

MANUFACTURINGMANUFACTURING

ProductionProduction is a Broader Term that Spans is a Broader Term that Spans both Manufacturing and Services both Manufacturing and Services

FunctionsFunctions

Production is the Application of Production is the Application of Resources, People and Machinery, Resources, People and Machinery, to to Convert Inputs into Finished Goods Convert Inputs into Finished Goods and and ServicesServices

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MASS PRODUCTIONMASS PRODUCTION

Mass Production: Mass Production: Makes Outputs Makes Outputs available in Large Quantities at Lower Unit available in Large Quantities at Lower Unit Costs than Individually- Crafted ItemsCosts than Individually- Crafted Items

Characteristics of Mass ProductionCharacteristics of Mass ProductionLabor SpecializationLabor SpecializationMechanizationMechanizationStandardizationStandardization

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ASSEMBLY LINESASSEMBLY LINES

Assembly Line first Introduced by Eli Whitney (Cotton Gin Inventor) to build Muskets for the US Government In 1799

Used Ideas of Specialized Labor and Engineering Standards (Tolerances) to produce Assemblies from Parts in Repeatable Manner

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HENRY FORDHENRY FORD

Introduced Moving Assembly Line: Dramatically Reduced Manufacturing Costs While Delivering Consistent, Low-Priced Product

Factory based on Chicago Meat Cutting Plants

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FORD MODEL “T” FORD MODEL “T”

First Produced: October 1908

By 1927, 15,000,000

ProducedAny Color so long

as it’s Black…

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ASSEMBLY LINE BENEFITSASSEMBLY LINE BENEFITS

Initially, took 14 hours to Assemble Initially, took 14 hours to Assemble Model T - Mass Production Model T - Mass Production

reduced reduced Time to 1 Hour and 33 Time to 1 Hour and 33 MinutesMinutes

Model T’s Price dropped from $1,000 Model T’s Price dropped from $1,000 in 1908 to $360 in 1916in 1908 to $360 in 1916

Result was Ford becoming Result was Ford becoming Dominant Dominant Automobile Manufacturer Automobile Manufacturer and and Assembly Line Method as Assembly Line Method as Dominant Dominant Production ApproachProduction Approach

 

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FORD ASSEMBLY LINESFORD ASSEMBLY LINES

 

Assembly Line pulled by Ropes Magneto Assembly

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MASS PRODUCTIONMASS PRODUCTION

MODEL “T” – Machine that MODEL “T” – Machine that Changed the WorldChanged the World

1914: Ford produced 308,162 cars, more than 1914: Ford produced 308,162 cars, more than all all 299 other auto manufacturers combined299 other auto manufacturers combined

1927: Automobile Produced every 24 seconds1927: Automobile Produced every 24 seconds Higher volumes Higher volumes → Lower cost → Lower Prices → Lower cost → Lower Prices

→Increased Sales → Higher Volumes→Increased Sales → Higher Volumes

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MASS PRODUCTIONMASS PRODUCTION

““PUSH” Strategy – Driven by Inputs and PUSH” Strategy – Driven by Inputs and ObjectivesObjectives

Control of Raw Materials and Labor plus Profit Control of Raw Materials and Labor plus Profit Goals = Production Rate separate from Goals = Production Rate separate from Customer Demands and PreferencesCustomer Demands and Preferences

Performance measured by Budget Variances and Performance measured by Budget Variances and Quantitative Results Quantitative Results (Defects or Unit Costs per (Defects or Unit Costs per Day, Week or Month), Day, Week or Month), not Quality Standardsnot Quality Standards

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MASS PRODUCTIONMASS PRODUCTION

Low Product Variety; Small Orders Not FeasibleLow Product Variety; Small Orders Not Feasible Specialized Machinery and Centralized ManufacturingSpecialized Machinery and Centralized Manufacturing ““Economies of Scale” – High-Speed Sequential Economies of Scale” – High-Speed Sequential

Production Production Development Costs Spread Over Large Volume: Development Costs Spread Over Large Volume:

Low Cost per Unit ProducedLow Cost per Unit Produced Low-Skill/Low-Wage Work ForceLow-Skill/Low-Wage Work Force Large Advertising and Marketing BudgetsLarge Advertising and Marketing Budgets

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FORD WORKING FORD WORKING CONDITIONSCONDITIONS

Monotony of Assembly Line Work: 300% Turnover Monotony of Assembly Line Work: 300% Turnover $2 per Day and a 9-Hour Shift$2 per Day and a 9-Hour ShiftFord’s Response to Working Conditions DilemmaFord’s Response to Working Conditions Dilemma Increase Pay to $5 per Day and Increase Pay to $5 per Day and

Reduce Shifts from 9 Hours to 8 HoursReduce Shifts from 9 Hours to 8 Hours

““The Chain System you have is a Slave Driver. My The Chain System you have is a Slave Driver. My God, Mr. Ford! My Husband has come Home and God, Mr. Ford! My Husband has come Home and Thrown Himself Down and won’t Eat his Supper, Thrown Himself Down and won’t Eat his Supper, He’s so done out. Can’t it be Remedied? That $5-a-He’s so done out. Can’t it be Remedied? That $5-a-day is a Blessing; a Bigger One than you Know. day is a Blessing; a Bigger One than you Know. But, Oh, They Earn It!”But, Oh, They Earn It!”

- Wife of Ford Assembly Line Worker

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MASS PRODUCTIONMASS PRODUCTION

Flaws of Mass Production Flaws of Mass Production ApproachApproach

Production Levels cannot Stop or Slow: Production Levels cannot Stop or Slow: Defects resolved outside Production Defects resolved outside Production (Added Costs of Rework)(Added Costs of Rework)

Long Changeover Times limits Product VarietyLong Changeover Times limits Product Variety Erratic Finished Products Inventory Levels Erratic Finished Products Inventory Levels

Incentives and 0% FinancingIncentives and 0% Financing

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MASS PRODUCTION MASS PRODUCTION Market Orientation FlawMarket Orientation Flaw

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TOYOTA’S ORIGINS

1902 Modification: Loom 1902 Modification: Loom Stopped Automatically if Stopped Automatically if

Thread Broke or Spool Thread Broke or Spool Empty - Signal for Empty - Signal for

AttentionAttentionResult: No Waste from Result: No Waste from

Defective Work and Defective Work and Lower Production CostsLower Production Costs

Toyoda Automated Loom WorksToyoda Automated Loom Works

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TOYOTA’S ORIGINS

During WWII, Toyoda became Toyota and manufactured Motorcycles and Delivery Trucks

After WWII, Japanese Industry needed to re-build

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TOYOTA’S ORIGINS

Found Mass Production Principles not Applicable: Scale of Japanese Markets Desire for Product Variety Unable to Afford Resources and Inventories

1956 – Taiichi Ohno went to US to study Ford’s

Manufacturing Facilities

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TOYOTA’S ORIGINS

Discovered Production and Operation Methods that Were Linked to Customer Actions: Inventories Replenished by Sales

(“PULL” Strategy) Delivered Product Variety and Scale Minimized Waste

Before returning to Japan, Ohno went to an American Grocery Store

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TOYOTA’S ORIGINS

Toyota Exports its First Car: The

Forgettable “Crown”

Under-powered and Unstable at

Freeway speeds, Production is

stopped in 1959

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TOYOTA TOYOTA PRODUCTION PRODUCTION

SYSTEMSYSTEM

In 1961, Toyota adopts “Systems Perspective”In 1961, Toyota adopts “Systems Perspective”KAIZEN – Continuous Improvement Attitude that

Minimizes Waste and Emphasizes High QualityProcesses are analyzed to eliminate flaws rather Processes are analyzed to eliminate flaws rather than fixing defective productsthan fixing defective products

WASTE – Comprehensive View that includes Time, Resources and Materials

Over-ProductionTime Spent WaitingUnnecessary Movements of Items

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TOYOTA TOYOTA PRODUCTION PRODUCTION

SYSTEMSYSTEM

Waste is anything other than the Waste is anything other than the minimumminimum amount of equipment, amount of equipment, materials, parts, space, and materials, parts, space, and workers’ time which are absolutely workers’ time which are absolutely essential to essential to add valueadd value to the product. to the product.

- Shoichiro Toyoda President,

Toyota Motor Co.

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TOYOTA TOYOTA PRODUCTION PRODUCTION

SYSTEMSYSTEM

KANBANKANBAN - Downstream Demand drives Upstream Activity (“Pull Strategy”)

Orders flow “Up” System, not from Top-down

Only what is Needed is Ordered and Produced

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TOYOTA TOYOTA PRODUCTION PRODUCTION

SYSTEMSYSTEM

ANDONANDON – Work Stops when Problem EncounteredCounter-measures taken to Cure Cause, Not re-work Defective Result. Authority delegated to Production TeamProduction and Problem-solving Functions combined. No Special Trouble-shooting Teams

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TOYOTA TOYOTA PRODUCTION PRODUCTION

SYSTEMSYSTEM

Result of TPS is “Just-in-Time” Inventory SystemResult of TPS is “Just-in-Time” Inventory System Comes from System’s Operation, Not a

Requirement of It: Element of “Waste” Management Philosophy

JIT relies on Supplier Relationships that Integrate Inventory Arrivals and Production Needs

JIT depends on Mutual Commitment of Toyota Loyalty and Supplier Performance

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TOYOTA TOYOTA PRODUCTION PRODUCTION

SYSTEMSYSTEM

Why Hasn’t TPS Been Universally Adopted?Why Hasn’t TPS Been Universally Adopted? Equipment Transition Costs: Short

Turnover Times (High Variety) combined with High Quality

Different Management Paradigm: Empower Assembly Line Workers to Stop Production and Order Process-correcting Counter-measures

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World’s Second Largest Manufacturer of Automobiles

About 240,000 Employees Produces a Vehicle about every Six

Seconds Consistently Profitable GM: $1.1

Billion Quarter Loss

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SUPPLY CHAIN SUPPLY CHAIN MANAGEMENTMANAGEMENT

A supply chain is a system through which A supply chain is a system through which organizations deliver their products and organizations deliver their products and services to their customers." services to their customers."

(Poirier and Reiter, 1996)(Poirier and Reiter, 1996)

"A supply chain is an integrated process "A supply chain is an integrated process wherein raw materials are manufactured into wherein raw materials are manufactured into

final products, then delivered to final products, then delivered to customers customers (via distribution, retail, or both)." (via distribution, retail, or both)."

(Benita, 1999)(Benita, 1999)

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SUPPLY CHAIN SUPPLY CHAIN MANAGEMENTMANAGEMENT

Supplier

Corporation

Customer

Customer

Customer

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supply Chain

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

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SUPPLY CHAIN SUPPLY CHAIN MANAGEMENTMANAGEMENT