Lecture supply chain management chapter 4 making

3/29/20

LOGO

CHAPTER 4: MAKING
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Contents
1

Introduction

2

Operation management perspectives

3

Production Capability Management

4

Need for new products

5

Lean Production

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Objective of learning
vOutline the role of Production management
and OM in business strategy
vDetail the 10 strategic decisions of OM
vFind the good locations for facilities
vKnow how to manage the Production
capability
vUnderstand the process of producing new
product
vApplying of Lean production
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1. Introduction

Make product

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1. Introduction
vProduct and process
§ Products: The way products are designed
determines the processes that are available to make
them.
§ Process: The product design and the process
determine the quality and cost of the product.
• Quality and cost determine the profitability of the
company.

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Definition of Production
The processes and methods used to transform
tangible inputs (raw materials, semi-finished
goods, subassemblies) and intangible inputs (ideas,
information, knowledge) into goods or services.
Resources are used in this process to create an
output that is suitable for use or has exchange
value.
/>uction.html

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Input: Human resources, capital, technical, raw
materials, land, energy, information
Output: product, service, wages, environmental
impact
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Role of production
Enterprise: provide variable good and service to enhance living
standard of whole society
Country: Manufacturing ability including productivity and production
efficiency
Supply chain: Value creation

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Classify production systems
Classify

Production volume and
repeatability

- Single production
- Mass production
- Batch production

Production organizing form

- Flow shop
- Job shop
- Production by project
Production models related to
customers

-

MTS
MTO
ATO
ETO
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2.Operation management perspectives
1. Production
Management

Goals:
- Optimize production
- Control inventories

2. Operations
management

Goals:
- Optimize production
- Optimize distribution/services

3. Operations and
process management

Goals:
- Optimize all business functions

4. Operations and SCM

Goals:
- Optimize/integrate all planning
- Optimize/integrate supply chain

- Reduce cost

- Increase efficiencies

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Production management

Definition

The design, execution, and control of operations
that convert resources into desired goods and
services, and implement a company's business
strategy.
/>ations-management.html

Nature of production
management
- Establish production system
- Manage the process of converting
inputs into outputs
- Meet the requirement of customers
and company’s objectives

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Role of production management
Ensuring outputs provided based on operating
resources effectively, and meet the highest
requirement of customers

- Ensuring the product and service quality suitable to customer’s
demand
- Ensuring the right quantity
- Minimize the unit cost
- Shorten production time and service provision
- Building a dynamic and flexible production system
- Building a compact system and method of management

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Basic activities of production management

- Forecasting production
demand
- Product design and
technology process
- Managing production

capacity of enterprises
- Factory positioning
- Production layout in the
enterprise
- Planning resources
- Production moderation
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Operation Management
vOperations management is responsible for producing
the products and services the customer wants, when
wanted, with the required quality, at minimum cost
and maximum effectiveness and productivity.

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The scope of Operation Management functions
Strategy

Generating strategies that create distinctive
operations competencies consistent with corporate
strategies

Quality

Setting quality levels for products and services
consistent with corporate strategies

Product
design

Translating customer requirements into product and
service designs while ensuring high quality and
reasonable cost

Process
design

Designing processes that leverage operations
competencies and optimize plant and delivery

Facilities

Generating strategies that create distinctive
operations competencies consistent with corporate
strategies
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The scope of Operation Management functions
Human
resources

Project

Management

SCM

Forecasting

Planning and
scheduling

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Establishing a motivated, skilled, committed,
innovative and customer-focused work force

Using effective techniques to manage projects that
ensure they are completed on time and within budget

Structuring a “chain” of suppliers, producers, and
distributors capable of acting as a single source to satisfy
the customer

Using methods and quantitative techniques to
forecast estimates of demand on operations resources

Using manufacturing and distribution planning systems to
assist operations to determine inventory and capacity
requirements
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Ten strategic OM decisions
v Product and service design: defining products and
service that optimize OM resources and competencies
v Quality: Matching quality specifications and customer
expectations
v Process and capacity design: Determining OM process
technologies, quality, human capital and maintenance
v Location selection: Locating manufacturing and
service resources that optimize marketplace needs
v Layout design: Maximizing plant material flows,
capacity needs, personnel levels, technology decisions,
and inventory requirements

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Lighthouse company need to choose a place to build site.
There are 3 options: A, B and C. The infomation of 3
places as follow:
- Reasoning suitable location according to production
output
- Which location should the company choose if it
produces 2000 products per year.
Table: fixed cost and variable cost of each location
Location

Fixed cost per year

Var. cost per year

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2-dimension coordinate method
A detergent factory has a distribution warehouse located at the coordinates
taken according to the map is (59; 40). This warehouse X supplies goods to
6 agents A, B, C, D, E and F. The coordinates and quantity of goods to be
transported to agents are calculated in the following table, Is the location of
the plant in the above position suitable?
Coordinate

Agents

Transport quantity
dn: distance to
delivery
location n
Wn: quantity
need
to
transport

to
location n

𝑥% W%
𝑑%
𝑥 =
W%
(
∑%)*
𝑑%
∑(%)*

𝑑% =

𝑥 − 𝑥%

1

+ (𝑦 − 𝑦% )1

𝑦% W%
𝑑%
𝑦 =
W%
(
∑%)*
𝑑%
∑(%)*

(

𝑀𝑖𝑛 / 𝑑% W%
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Finding the suitable place for the site with lowest transport cost?
dn: Distance to delivery location n
Fn: Transportation cost of delivery location n
Qn: Quantity need to transport to location n

𝐹% 𝑥% 𝑄%
𝑑%
𝑥 =
𝐹
𝑄
∑(%)* % %
𝑑%
∑(%)*

Sources/
Markets
Lam Dong
Suppy
Nha Trang
sources
Tien Giang
TPHCM
Binh Duong
Markets Binh Phuoc
Dong Nai

Vung Tau

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𝐹% 𝑦% 𝑄%
𝑑%
𝑦 =
𝐹
𝑄
∑(%)* % %
𝑑%
∑(%)*

𝑑% =

𝑥 − 𝑥%

1

+ (𝑦 − 𝑦% )1

(

𝑀𝑖𝑛 / 𝑑% 𝑄% 𝐹%
%)*

Transportation Quantity in
cost (USD/ton km)
tons
Xn

(Fn)
(Qn)
90
400
95
200
85
600
200
200
200
100
200
200
200
300
200
200

Coordinates
Yn
700
1000
200
500
300
800
1000
500
1000

2000
700
1500
800
1800
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900
2500

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Ten strategic OM decisions
v Job design and work measurement: developing and
measuring OM workforce, skills, talents and innovative
thinking
v SCM: networking customers and suppliers with OM to
promote mutual trust, quality, delivery and innovation
v Inventory: leveraging inventory to optimize customer
satisfaction, supplier capabilities, production schedules
and workforce planning
v Scheduling: Integrating product and service
requirements with feasible production and purchasing
schedules
v Maintenance: Utilizing schedules of preventive
maintenance to prevent equipment failure and
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downtime

3. Production Capability Management

Definition

Production
capacity

Production capability is the ability to
produce the amount of product in a unit
of time, measured by the production
capacity

- Production capacity of equipment or
technological line in a unit of time
- Measurement unit: T, kg, m, currency
value…

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Capacity planning

Balance between capacity and demand

Avoid waste due to excess capacity

Proceed when there are activities:
- Human resource changing
- Additional equipment
- Increase/decrease product
- Redesign production process
- Flexibility enhancing
- Production cost reduce

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Capacity planning
Capacity planning

Capacity planning process

ü
ü
ü
ü
ü
ü

Current capacity evaluation
Capacity demand estimation
Additional capacity determination
Capacity plans determination
Selecting suitable capacity plan
Evaluating economics and social

effectiveness

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Production moderating
Allocating resources over time to perform
production tasks

Definition

Capacity planning

ü Long – term: year
ü Resources determination: equipment

Production planning

ü Mid – term: Quarter, month
ü Using equipment, labor

Production
schedule

ü Mid – term: week
ü Material planning,
production planning

Production moderating

ü Short – term: day, hour
ü Task order, completion time
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Role
ü Minimize completion time
ü Maximize equipment utilizing
ü Minimize doing tasks
ü Minimize delay

Benefit
ü Balance supply and demand in enterprise
ü Make the adaption in Supply chain

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Priority Rules

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Example
vThere are orders that need to be processed as
follows:
Task

Processing time

Lead-time

A

6

8

B

2

6

C

8

18

D

3

15

E

9

23

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RESULTS COMPARED BY 3 PRINCIPLES
vAverage completion time = Total time line / number
of jobs
vAverage Job Number = Total Time Line / Total
Processing Time
vAverage delay time = Total number of late day/ job
number

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Evaluation of production process
Productivity
ü Productivity is a measurement for the effectiveness of task
ü Evaluating the effectiveness of business

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Productivity
measurement

Part
measurement

Output
Labornumber

Many factors
measurement

Total
measurement

Output
Materials

Output
Capital

Output
Labor + material

Output
Energy

Output
Capital + Energy

Numberofproductorservicesmade
Totalinput

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Improve
productivity
Productive improvement=

RSTUVWXYZYX[(X)\RSTUVWXYZYX[(X\*)
RSTUVWXYZYX[(X\*)

Enterprise
(Increase Profit)
Government

(Increase tax, GDP)

Improve
productivity

Customer
(High Quality,
suitable price)

Labor
(Increase income)
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Factors to Improve
productivity

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Selecting strategy to
improve productivity
Downsizing production

Output

Input

Reduce cost

Output
Input

Enhance Effectiveness

Output
Input

Promote growth

Output
Input

Creative, innovative

Output
Input
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4. Need for new products
vThree ways for maintaining profitability in decline
phase
§ Introduce new products
§ Improve existing products
§ Improve the methods of production

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New product development process

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Product Design process flow
TIÊU ĐỀ
Concept
generation

Form design
Determine
physical
appearance of the
product

Target customer
and service
experience

Concept
development

Functional
design

Analyze
feasibility of
proposed new
products

Determine
performance
specifications of
the product

Productional
design
Determine
processing
specificaitons of
the product

Production
Rollout

General
product release

Final design and testing
Perform prototype testing,
establish final designs, launch
marketing campaign

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Product development principles
1) Customer focus:
§

Products and services should always be designed to satisfy customers’
wants or needs from their perspective

2) Simplification
§ The emphasis is not cutting out products simply to reduce variety, but to
remove unnecessary products and variations

3) Standardization
§ Standardization is the way parts fit together. If the designs of assemblies
are standardized so various models or products are assembled in the
same way, the mass production is possible.

4) Specialization
§ In product specialization, a firm may produce and market only one or a
limited range of similar products. This leads to process and labor
specialization, which increases productivity and decreases costs.

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