Chapter 6 Producing Goods and Services
Economies of scale
Higher volume production with lower cost per unit of output
Suitable in situations where production processes have high fixed costs and equipment.
Economies of scope
Low-volume production with flexible capabilities of producing a wide variety of products
Important in markets characterized by changing customer demand.
Production trade offs
Centralized production facilities provide operating cost and inventory efficiencies.
Regional production facilities allow companies to be closer to customers and more responsive.
Large Facilities with excess capacity provide flexibility to respond to demand spikes.
Smaller facilities that are better utilized are more cost efficient.
Product-focused facilities performing many processes on a singe product type are more responsive.
Product-focused facilities concentrating on a few functions across multiple product types are more
efficient at its limited scope of activities.
You have the decision to make or outsource the production of product, or both.
In-house (make)
Internal production processes are more directly visible
Internal processes are easier to control form a quality standpoint
Outsource (buy)
Lower product costs
Free-up resources for other, more strategic needs
Although, it is more difficult to maintain visibility and synchronize activities
It is more difficult to control over quality, intellectual property rights, and customer
relationships.
Production Challenges
1. Comply with increased regulation and traceability requirements
2. Keep up with the pace of product innovation
3. Overcome a shortage of skilled labor
, 4. Control capital, pay, and benefits costs
5. Manage environmental concerns
6. Balance productivity throughout with maintenance requirements
7. Manage competitive pressure driven by globalization
8. Synchronize activities with the supply chain
Operating Strategy and planning
Mass production
Limitation on producer’s responsiveness
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
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
Production Planning
Production execution decisions
Assembly Processes
, Production Process Layout
It involves the arrangement of machines, storage areas, and other recourses within the four walls of
a manufacturing or an assembly facility. The layout is influenced by a number of factors.
The layout is influenced by a number of factors:
The production strategy ad assembly process employed
Product characteristics (weight, fragility, size)
Demand characteristics (volume & variability)
Service commitments
Production mixes
Facility costs
Production process layouts generally fit into a spectrum of work flow that moves from project to
continuous processes.
Packaging
Well-designed packaging can facilitate efficient handling and shipping of the finished goods. And
improve labor and facility efficiency (space & equipment utilization); and provide another level of
product differentiation sought by the customer.
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
Production Metrics
Use golden metrics
Economies of scale
Higher volume production with lower cost per unit of output
Suitable in situations where production processes have high fixed costs and equipment.
Economies of scope
Low-volume production with flexible capabilities of producing a wide variety of products
Important in markets characterized by changing customer demand.
Production trade offs
Centralized production facilities provide operating cost and inventory efficiencies.
Regional production facilities allow companies to be closer to customers and more responsive.
Large Facilities with excess capacity provide flexibility to respond to demand spikes.
Smaller facilities that are better utilized are more cost efficient.
Product-focused facilities performing many processes on a singe product type are more responsive.
Product-focused facilities concentrating on a few functions across multiple product types are more
efficient at its limited scope of activities.
You have the decision to make or outsource the production of product, or both.
In-house (make)
Internal production processes are more directly visible
Internal processes are easier to control form a quality standpoint
Outsource (buy)
Lower product costs
Free-up resources for other, more strategic needs
Although, it is more difficult to maintain visibility and synchronize activities
It is more difficult to control over quality, intellectual property rights, and customer
relationships.
Production Challenges
1. Comply with increased regulation and traceability requirements
2. Keep up with the pace of product innovation
3. Overcome a shortage of skilled labor
, 4. Control capital, pay, and benefits costs
5. Manage environmental concerns
6. Balance productivity throughout with maintenance requirements
7. Manage competitive pressure driven by globalization
8. Synchronize activities with the supply chain
Operating Strategy and planning
Mass production
Limitation on producer’s responsiveness
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
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
Production Planning
Production execution decisions
Assembly Processes
, Production Process Layout
It involves the arrangement of machines, storage areas, and other recourses within the four walls of
a manufacturing or an assembly facility. The layout is influenced by a number of factors.
The layout is influenced by a number of factors:
The production strategy ad assembly process employed
Product characteristics (weight, fragility, size)
Demand characteristics (volume & variability)
Service commitments
Production mixes
Facility costs
Production process layouts generally fit into a spectrum of work flow that moves from project to
continuous processes.
Packaging
Well-designed packaging can facilitate efficient handling and shipping of the finished goods. And
improve labor and facility efficiency (space & equipment utilization); and provide another level of
product differentiation sought by the customer.
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
Production Metrics
Use golden metrics
