BUSOBA 3230: Manufacturing and Service Processes

*Positioning Inventory in the Supply Chain Graph

• Illustrates the source step where parts are procured from one or more suppliers, the make step where manufacturing takes place, and the deliver step where the product is shipped to the customer.

• These activities are organized to minimize cost while meeting the competitive priorities necessary to attract customer orders.

*Process

Value Transformation/Sequence of a bunch of activities.

*Process Def.

Any set of activities performed by an organization that takes inputs and transforms them into outputs ideally of greater value to the organization than the original inputs.

Product-Process Matrix

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

Horizontal Axis of Product-Process Matrix

Relates to the volume of a product or group of standardized products.

Vertical Axis of Product-Process Matrix

Standardization is shown on the vertical axis and refers to variations in the product that is produced.

Variations

Measured in terms of geometric differences, material differences, and so on.

*Workcenter/Job Shop

• Manual, Labor Intensity

• High customization.

• Low volume.

• Ex. Custom Furniture

• Often referred to as a job shop, a process structure suited for low-volume production of a great variety of nonstandard products.

• Similar equipment or functions are grouped together, such as drilling in one area and stamping in another.

• Part being worked on travels from workcenter to workcenter, where the proper machines are located for each operation.

*Batch

• Disconnected Processes.
• Middle of variety and volume.
• Ex. Kitchen appliances.

*Mass Customization

• Defined as the best of both worlds.

• Customization and volume.

• In between batch and assembly. Exactly in the middle of variety and volume.

*Assembly Line

• Connected processes.

• Middle of variety and volume.

• Ex. Cars.

• A setup in which an item is produced through a fixed sequence of workstations, designed to achieve a specific production rate.

• Used in high-volume items where the specialized process can be justified.

*Continuous Flow/Process

• High capacity intensity. 24/7 optimization.

• Low customization. High volume.

• Ex. Beer, steel, soda

• A process that converts raw materials into finished product in one continuous process.

*Example of Birthday Cake

Process Choice Type: Job Shop, Volume: Low, Variety: High, Capital Intensity: Low (Manual), Capital Change Cost: Easy, Labor Intensity: High, Ability to Stop Flow: Easy.

*Example of Bagels

Batch (Arrows in both directions/going left and right).

*Example of Cars

Assembly Line (Arrows in both directions/going left and right).

*Example of Soda/Beer

Process Choice Type: Continuous Flow, Volume: High, Variety: Low, Capital Intensity: High, Capital Change Cost: Difficult/It takes time, Labor Intensity: Low, Ability to Stop Flow: Hard.

*Make To Stock

• Based on forecast (everything you see in stores). Makes finished goods inventory.

• Short customer lead time.

• A production environment where the customer is served "on-demand" from finished goods inventory.

*Assemble To Order

• Some work done before the customer order. Best of both worlds. Custom + Speed.

• A production environment where preassembled components, subassemblies, and modules are put together in response to a specific customer order.

*Make To Order Process

• All work is done based on actual customers orders, real demand.

• Long customer lead time.

• A production environment where the product is built directly from raw materials and components in response to a specific customer order.

*Source Step

Where parts are procured from one or more suppliers.

*Make Step

Where manufacturing takes place.

*Deliver Step

Where the product is shipped to the customer.

*Source, Make, and Deliver

Organized to minimize cost while meeting the competitive priorities necessary to attract customer orders.

*Lead Time

The time needed to respond to a customer order.

Break Even Volume

Q = F/P-C

*Fixed Cost

More Capital Intensive: High, Less Capital Intensive: Low.

*Efficiency is connected to Cost, which is 

Fixed + Variable 

*Variable cost are

VOLUME dependent.

*Break even volume is when

Revenue = Cost

*Process choice determines

cost structure (fixed vs. variable)

Fixed cost include

Capital Equipment/Automation

Variable cost include

People/Labor

*Break Even Volume

More Capital Intensive: Higher (Budweiser), Less Capital Intensive: Lower (Seventh Son)

*Cost To Add Capacity

More Capital Intensive: High, Less Capital Intensive: Low.

*Make vs Buy (Decisions)

• Volume where costs are the same.

• Make (Total Cost/A) = Buy (Total Cost/B).

Customer Involvement

Possible Advantages: Customer do some of the work. Ask for clarification. Ask for custom requirements. Form a relationship.

Customer Involvement Disadvantages

Customer may not want to work or be able to do work. May be disruptive.

*Front Office

• Customer facing process.

• High customization and low volume.

• Hostess, Bank Teller.

*Back Office

• Back of House
• Low customization and high volume.
• Kitchen, Behind The Scenes, Purchasing Director.

*Hybrid Office

• Some customer interaction.
• Middle of customization and volume.
• Ex. Chipotle

Quicker response to customer demand

Comes at the expense of greater inventory investment because finished goods inventory is more expensive than raw material inventory.

Finished Goods Inventory (FGI)

An item in FGI contains all the RM needed to produce the item. It includes the cost of the material, plus the cost to fabricate the finished item.

Y-Axis in Cost-Volume Graph

Cost.

X-Axis in Cost-Volume Graph

Volume Q.

*Customer Order Decoupling Point

• Where inventory is positioned in the supply chain.
• This allows processes or entities in the supply chain to operate independently.

*Lean Manufacturing

To achieve high customer service with minimum levels of inventory investment.

*Product-Process Matrix

• A framework depicting when the different production process types are typically used, depending on product volume and how standardized the product is.
• Horizontal relates to the volume of a product or group of standardized products. Standardization is shown on the vertical axis and refers to variations in the product that is produced.
• Variations are measured in terms of geometric differences, material differences, and so on

*Break-Even Analysis

A standard approach to choosing among alternative processes or equipment.

*An Operational Classification of Services

• Service organizations are generally classified according to who the customer is and to the service they provide.
• There's one item of information to reflect the fact that the customers are involved in the production system. That item is the extent of customer contact in the creation of the service.

*Service Package

• A bundle of goods and services that is provided in some environment.
• Five features: Supporting facility, facilitating goods, information, explicit services, and implicit services.

*Supporting Facility

The physical resources that must be in place before a service can be offered. An example is an internet website.

*Facilitating Goods

The material purchased or consumed by the buyer or the items provided to the customer. An example are golf clubs.

*Information

Operations data or information that is provided to the customer, to enable efficient and customized services. An example is detailed descriptions of the items offered.

*Explicit Services

The benefits that are readily observable by the senses and that consists of the essential or intrinsic features of the service. An example is the response time of an ambulance.

*Implicit Services

Psychological benefits that the customer may sense only vaguely, or the extrinsic features of the service. An example is the status of a degree from an Ivy League school.

*High and Low Degree of Customer Contact

The physical presence of the customer in the system and the percentage of time the customer must be in the system relative to the total time it takes to perform the service.