Supply Chain

Management,
11e
Chapter 6: Producing Goods and
Services

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1
 Discussion Outline
• The role of production operations in supply chain management

• Operations strategy and planning

• Production execution decisions

• Production metrics

• Production technology

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2
Role of Production
Operations in SCM

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3
Role of Production Operations in SCM
Production Process Functionality

Source Figure 6.1: Brian J. Gibson, Ph.D. Used with permission.

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4
 Production Tradeoffs

1. Volume vs. Variety

2. Responsiveness vs. Efficiency
3. Production costs vs. Supply chain costs
4. In-house (Make) vs. Outsource (Buy)

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5
 Production Tradeoffs
Volume vs. Variety in Production Process Decisions
Economies of Scale Economies of Scope
• Higher-volume production with lower • Low-volume production with flexible
cost per unit of output capabilities of producing a wide
variety of products
• Suitable in situations where
production processes have high fixed • Important in markets characterized
costs and equipment. by changing customer demand.

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6
 Production Tradeoffs
Responsiveness vs. Efficiency in Production Facility Decisions
Centralized vs. Regional
• Centralized production facilities provide operating cost and inventory efficiencies.
• Regional production facilities allow companies to be closer to customers and more responsive.

Large vs. Small

• Larger facilities with excess capacity provide the flexibility to respond to demand spikes.
• Smaller facilities that are better utilized are more cost efficient.

Product-focused vs. Process-focused

• Product-focused facilities performing many processes on a single product type are more responsive.
• Process-focused facilities concentrating on a few functions across multiple product types are more efficient
at its limited scope of activities.

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7
 Production Tradeoffs

Source Figure 6.2: Adapted from Bowersox, Closs, and Cooper, Supply Chain
©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Logistics Management, 4th ed. (Boston, MA: McGraw Hill/Irwin, 2012). Copyright ©
2012 by McGraw-Hill. Reproduced by permission of McGraw-Hill Companies, Inc.
Production Costs vs. Other Supply Chain Costs

8
 Production Tradeoffs
In-house (Make) vs. Outsource (Buy)
In-house (Make) Outsource (Buy)
• Internal production processes are • Lower product costs
more directly visible.
• Free-up resources for other, more
• Internal processes are easier to strategic needs
control from a quality standpoint.
BUT
• More difficult to maintain visibility and
synchronize activities.
• More difficult to control over quality,
intellectual property rights, and
customer relationships.
©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9
Operations Strategy and
Planning

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10
Operations Strategy and Planning
Evolution of Production Strategies

Source Figure 6.3: Adapted from Manufacturing Strategy: An Adaptive

Perspective (Newton Square, PA: SAP AG, 2003).
©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11
 Operations Strategy and Planning (1 of 2)
Production Strategy Challenges
Mass Production
• Limitation on producer’s responsive-ness
• Potential for the bullwhip effect
Lean Manufacturing
• Difficult to achieve economies of scale
• Require technological capabilities to achieve the supply chain visibility and
synchronization
• Increased risk of disruption

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12
 Operations Strategy and Planning (2 of 2)
Production Strategy Challenges
Flexible Manufacturing
• High capital investment
• System complexity
• Require skilled technician
• Require disciplined & high level of planning
Adaptive Manufacturing
• Require seamless transfer of knowledge and real-time information
Smart Manufacturing
• Require capabilities of a network with messaging standards
• Require analytical toolkit
• Require flexible automation
©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13
Operations Strategy and Planning
Production Planning

Supply Chain Management: A Balanced Approach, 5th ed. (Boston, MA:

Source Figure 6.4: Adapted from Wisner, Tan, and Leong, Principles of

Cengage Learning, 2019). Reproduced by permission.

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14
Production Execution
Decisions
Assembly Processes
Production Process Layout
Packaging

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15
 Production Execution Decisions
Assembly Processes
Assembly Processes
• Make-to-Stock (MTS)
• Make-to-Order (MTO)
− Assemble-to-Order (ATO)
− Build-to-Order (BTO)
− Engineer-to-Order (ETO)

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16
 Production Execution Decisions
Comparison of Make-to-Order (MTO) Options
ATO BTO ETO

Source Table 6.2: Brian J. Gibson, Ph.D. Used with permission.

Level of customization Limited Moderate Total

Cost of finished goods Moderate High Very high

Order fulfillment speed Days to weeks Weeks to months Month to years

Production process
Moderate High Extreme
complexity
Personal computers Computer servers Stadium JumboTron
Example products
Automobiles Private jets Nuclear power plant

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17
 Production Execution Decisions (1 of 2)
Production Process Layout
Production process layout involves the arrangement of machines, storage areas, and other
resources within the four walls of a manufacturing or an assembly facility. The layout is
influenced by a number of factors.

• The production strategy and assembly process employed

• Product characteristics (weight, fragility, size)

• Demand characteristics (volume & variability)

• Service commitments

• Production mixes

• Facility costs

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18
 Production Execution Decisions (2 of 2)
Production Process Layout
Production process layouts generally fit into a spectrum of work flow that moves from
projects to continuous processes.

and Supply Chain Management 15th ed. (Boston, MA: McGraw-

Source Figure 6.5: Adapted from Jacobs and Chase, Operation

Hill Irwin, 2018). Reprinted with permission of McGraw-Hill

Companies, Inc.
©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19
 Production Execution Decisions
Packaging
Well-designed packaging can: (1) Facilitate efficient handling and shipping of the finished
goods; (2) Improve labor and facility efficiency (space & equipment utilization); and (3)
Provide another level of product differentiation sought by the customer.

Key Considerations:
• Ease of handling (materials handling & transportation)

• Protection of goods in the package

• Compatibility with customers’ materials-handling equipment

• Information provision to production & logistics personnel

• Sustainability

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20
 Production Metrics

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21
 Establishing Production Metrics

Pursue Goals Avoid Mistakes

• Align metrics with corporate • Using KPIs that are too narrow.
objectives
• Encouraging wrong outcomes.
• Limit the number of metrics used to 5
• Focusing on issues that are not key
or 6 per function
priorities.
• Measure performance of individual
activities

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22
 Key Groups of Production Metrics

1. Customer experience and responsiveness

2. Quality
3. Efficiency
4. Inventory
5. Compliance
6. Maintenance
7. Flexibility and innovation
8. Cost and profitability

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23
Production Technology

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24
 Manufacturing Execution System
Technology that connects, monitors, and controls complex
manufacturing systems and data flows on the factory floor.

Core Functionality:

• Data collection & acquisition • Quality management

• Scheduling • Process management

• Staff controls • Performance analysis

• Resource management • Document management

• Production tracking & dispatch • Maintenance management

• Product traceability & genealogy

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25
 Manufacturing Execution System Benefits

Initial 3-12 months Next 12-36 months 36 months +

• Efficiency gains • Process • New product
improvements development
• Cost reductions
acceleration
• Cycle time & work
• Quality • Indirect labor cost
flow compression
improvements reduction
• Inventory carrying
cost reductions • Agility & asset
utilization
improvements

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26
 Summary
• Process functionality can create a competitive advantage such as: low cost, high quality, fast
delivery speed, high delivery reliability, ability to cope with demand change, and the flexibility to
offer variety.
• Production strategies have advanced from forecast-driven mass production to demand-driven,
lean, flexible, adaptive, and smart manufacturing approaches.
• Most manufacturers use a combination of make-to-stock and make-to-order (including assemble-
to-order, build-to-order, and engineer-to-order) production methods to satisfy demand for their
products.
• Tradeoffs made regarding production are: volume vs. variety, responsiveness vs. efficiency, in-
house vs. outsource, and production costs vs. other supply chain costs and services.
• Critical production KPIs address total cost, total cycle time, delivery performance,
quality, and safety.

©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27