Manufacturing Strategy, Planning and Execution

Major Issues

Types of manufacturing environments

Overview of corporate and business strategies Order winners and qualifiers

Operations strategy overview

Market and resource perspectives of operations strategy Functional strategies

Manufacturing planning and execution

The reconciliation of functional perspectives

Major Issues
Production planning
Demand management Resource planning Capacity issues in production planning Master Production Scheduling and MRP Execution of plans Best Manufacturing Practices (BMP)

Characteristics of Manufacturing Environment

Increased product diversity Reduced product life cycles Increased awareness of the environment
impact of products & manufacturing systems Difficulties of estimating the costs and benefits Changing social expectations

Discrete Manufacturing Environments

Make-to-Stock (MTS)
Assemble-to-Order (ATO) Make-to-Order (MTO) Engineer-to-Order (ETO)
Level of complexity

Discrete Manufacturing: MTO

An MTO product is finished after receipt of the customer order. Frequently long lead time components are planned prior to the order arriving in order to reduce the delivery time to the customer. Where options or other subassemblies are, the stocked prior to customer orders arriving, the term assemble to order is frequently used APICS (1987)

Discrete Manufacturing: ATO

Typically, delivery time requirements are shorter than total manufacturing lead time Production is usually started in anticipation of customer orders Basic components and subassemblies are produced using a push system (MRP) Final assembly is managed via a pull system (JIT)

Major Issues
Types of manufacturing environments
Overview of corporate and business strategies Order winners and qualifiers Operations strategy overview
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Corporate Strategy
How the firm plans to use all its resources and functions to gain competitive advantage Corporate objectives typically include:
Growth Survival Profit Return on Investment Other financial measures Employee policies Environmental policies ...
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General Business Strategy

Cost leadership Differentiation
Create unique products commanding a premium price based on:
Brand image Quality Features/options Rapid delivery Superb customer service

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Major Issues
Types of manufacturing environments Overview of corporate and business strategies Order winners and qualifiers

Operations strategy overview

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Competitive Priorities
Basic strategies:
Cost Quality Speed of delivery Product/volume flexibility Innovation

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The Order Qualifiers

These are product or service characteristics that allow your company to be present in the market. They include:
Quality Price Reputation Number of years in business Reliability ...
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The Order Winners

These are product or service characteristics that allow your company to win orders in the market. They include:
Quality Price Speed of delivery Consistency of delivery Reliability ...

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Order Winners and Qualifiers

Over the lifetime of a product operationsrelated criteria are most important winners and qualifiers The relative importance (weights) of various order winners changes as products travel on the product lifecycle curve (over time) and must be continuously monitored and updated for each product and each market segment
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Major Issues
Types of manufacturing environments
Overview of corporate and business strategies Order winners and qualifiers Operations strategy overview
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Operations Strategy: Definition

Operations strategy involves the decisions which shape the long-term capabilities of the companys operations and their contribution to overall strategy through the on-going reconciliation of market requirements and operations resources

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Developing an Operations Strategy

Corporate Objectives
Growth Survival Profit Return on investment Other financial measures

Marketing Strategy
Product markets and segments Range Mix Volumes Standardization vs. customization Level of innovation Leader vs. follower alternatives

Order Winning Criteria

Price Conformance quality Delivery speed Delivery reliability Volume flexibility Color range Product range Design Brand image Technical support After sales support

Manufacturing Strategy

Process Choice
Choice of alternative processes Tradeoffs embodied in process choice Role of inventory in process configuration Make of buy decisions and supply chain management Capacity size Capacity timing Capacity location

Infrastructure
Functional support for operations Manufacturing planning and control systems Quality assurance and control Manufacturing systems engineering Clerical procedures Compensation agreements Work structuring Organizational structure 18

Components of the Operations Strategy

Procurement
Product Design

Location

Quality Management
Schedule

Operations Mission and Strategy

Layout Process Design Human Resources & Job Design

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Reliability & Maintenance

Inventory

The Dichotomy of Business Views

Operations has to cope with the clash between the nature of external markets and the nature of internal resources

Operations Resources are.

Difficult to change

Market Requirements are.

Dynamic
Heterogeneous Ambiguous

Technically constrained
Complex

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Operations Decisions are Structural & Infrastructural

Capacity Supply Network

Process Technology

Development and Organization

Hard issues Soft issues

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Understanding Markets
Understanding markets and agreeing on how to approach them is critical to strategy implementation success
In-depth debate about the markets, their needs and manufacturing/operations capabilities must involve all functions (cross-functional team approach) Each organizational function must develop strategies to support current and future market needs Each functions strategic contributions are expressed in terms of priorities, developments and investments or resources

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Major Issues
Market and resource perspectives of operations strategy
Functional strategies Manufacturing planning and execution

The reconciliation of functional perspectives

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Market Needs vs. Operations Capabilities

Strategic Reconciliation

Operations Resources

OPERATIONS STRATEGY

Market Requirements

Operations strategy reconciles the requirements of the market with the capabilities of operations resources

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Two Operations Strategy Perspectives

Tangible and Intangible Resources Operations Capabilities Operations Strategy Decision Areas Customer Needs

Performance Objectives

Market Positioning

Operations Processes Understanding resources and processes Strategic decisions Required performance

Competitors Actions Understanding markets

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Example: The Market Analysis for a Hydraulic Pumps Manufacturer

CUSTOMERS Segmentation based on: Purchase volume End-item application OEM or replacement Geographic location MARKET POSITION Differentiation based on: Innovative products Time to market Product range Coordinated launches

PERFORMANCE OBJECTIVES

Dependability Speed of delivery Conformance quality Speed to market

COMPETITORS Traditionally weak in:

Promotion Design innovation Conformance quality

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Resources
Tangible

Equipment Staff Reputation Relationships (internal and external) Experience

Intangible

Example: Operations Strategy Decisions for a Hydraulic Pumps Manufacturer

Operations Strategy Decisions

Application of leadingedge high-pressure technology and electronic controls

Capabilities

Articulation of client
requirements

Location Computer simulation capability Internet specking by customers Supplier development Order tracking system Organizational structure/culture Staff meetings

Integration of equipment
supply and client requirements

Processes

Design process Supplier liaison process

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Operations strategy is the strategic reconciliation of market requirements with operations resources
Operations Resources Operations Resources Operations Competences Operations Processes Operations Strategy Decisions Performance Objectives Strategic Reconciliation Market Requirements Market Segmentation Market Positioning Competitor Activity Strategic Decisions

Understanding Resources and Processes

Required Performance

Understanding Markets

Capacity Supply networks Process technology Development and organization

Quality Speed Dependability Flexibility Cost

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Major Issues
Market and resource perspectives of operations strategy
Functional strategies Manufacturing planning and execution

The reconciliation of functional perspectives

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Functional Strategies
Functional strategies are typically developed independently of one another and may be inconsistent with corporate strategic objectives

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Functional Perspectives
Inputs from all functions that are engaged in the provision of product or interface with the marketplace hold insights into customer requirements One function cannot dominate the process since this leads to overemphasizing the need to respond to customers actual or perceived needs and demands Checking the impact on a business must be part of a firms overall assessment of a market, segment or customer
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Functional Strategies
Firm/business unit strategy

R&D

Marketing

Engineering

Manufacturing

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Functional Strategies
Functional strategies should be developed in an integrated process and be consistent with corporate strategic objectives

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Functional Strategies
Firm/business unit strategy

R&D Marketing

Engineering

Operations

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Major Issues
Market and resource perspectives of operations strategy
Functional strategies Manufacturing planning and execution

The reconciliation of functional perspectives

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Manufacturing Planning and Execution

Resource Planning Production Planning Demand Management

Front End
Planning

Master Production Scheduling

Detailed Capacity Planning

Detailed Material Planning

Engine

Material and Capacity Plans

Execution

Order Release

Purchasing

Back End
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Manufacturing Planning and Execution

Overall manufacturing planning Detailed material planning Executing the plans

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Manufacturing Planning and Execution

Planning involves converting firm orders and demand forecasts into material requirements using:
Production plans (months) MPS (weeks) MRP (weeks)

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Manufacturing Planning and Execution

Execution involves, for each work center:
Issuing daily assembly schedules Using component inventories to convert them into finished products for order fulfillment Issuing daily shipping schedules

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Manufacturing Planning and Execution

It is expected to have a discrepancy between the resources planned vs. the resources available during execution Deficiencies in planning must be overcome by actions in execution

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Manufacturing Planning and Execution

Approaches to addressing discrepancies between planned and available resources during execution:
Discipline in execution sticking to the MPS Total cycle time reduction Simplifying product lines

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Major Issues
Market and resource perspectives of operations strategy
Functional strategies Manufacturing planning and execution

The reconciliation of functional perspectives

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The Reconciliation of Functional Perspectives

Firm orders from known customers Aggregate Product Plan Forecast of demand from random customers

Engineering design changes

Master Production Schedule (MPS) Material Requirements Planning (MRP)

Inventory transactions

Bill of Materials (BOM) file

Inventory records file

Reports

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The Linkages of Functional Planning

Various functions including marketing, finance and production, interact in formulating a game plan A game plan reconciles market and resource perspectives in formulating a production plan

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The Linkages of Functional Planning

Marketing Planning The Game Plan Financial Planning

Resource Planning

Production Planning

Demand Management

Markets

Master Production Scheduling

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Major Issues
Production planning
Demand management Resource planning

Capacity issues in production planning

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Production Planning
Production planning is the forum for reconciling various functional perspectives from the point of view of operations Production planning facilitates a dialogue between manufacturing and top management

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Production Planning
Production planning uses a common business terminology in communicating with manufacturing and nonmanufacturing executives It is stated in commonly understood measures, such as aggregate units

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Top Management Role in Formulating a Game Plan

Commitment to the game planning process Align functional strategies with the corporate strategy
Resolve conflicts between functional goals Resolve tradeoffs between functions prior to approving plans

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The Role of Functions in Executing a Game Plan

All functional areas must hit the agreed upon plan
Communication especially in instances when there are problems in hitting the plan

The most critical issue is integration of planning and control between marketing and production

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Overall Manufacturing Planning

Resource Planning

Production Planning

Demand Management

Markets

Master Production Scheduling

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Overall Manufacturing Planning

Activities for overall direction setting for manufacturing
Demand Management Resource Planning Master Production Scheduling

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Major Issues
Production planning
Demand management Resource planning

Capacity issues in production planning

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Demand Management
Forecasting Order entry Order promising Distribution planning Other activities

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Demand Management
Is a link to the market place It should enable coordination between manufacturing, markets, other plans and warehouses Demand management provides inputs to:
MPS (for end items) MRP (for spare parts)

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Demand Management
Account for all sources of demand
Finished products Spare parts Intra-company requirements Samples Pipeline inventory

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Major Issues
Production planning
Demand management Resource planning

Capacity issues in production planning

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Resource Planning
Long range capacity planning to produce products
Involves converting aggregate production plans into resources such as labor hours and machine hours

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Resource Planning
Long range capacity planning to produce products
Involves converting aggregate production plans into resources such as labor hours and machine hours

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Major Issues
Production planning
Demand management Resource planning

Capacity issues in production planning

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Capacity Issues in Production Planning

Resource Planning Resource Planning Production Planning Demand Management

Rough-cut Capacity Planning

Master Production Scheduling

Capacity Requirement Planning

Material Requirement Planning

Finite Loading

Input/Output Analysis

Vendor Systems

Shop-Floor Systems 61

Rough-Cut Capacity Planning (RCCP)

Rough estimate of capacities required to satisfy the master production schedule
RCCP does not take into account WIP inventory,scheduled receipts, planned orders, etc.

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Example: Rough-Cut Capacity Planning

Suppose that 35,000 hrs of final assembly time are available per week. The MPS for a product is 2,000 units/week. One unit requires 20 hrs of assembly time. The capacity required is (2000)(20) = 40,000 hrs. Therefore, an additional 5,000 hrs of final assembly capacity will be needed in that period

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Capacity Requirements Planning (CRP)

Detailed capacity plans Capacity need for machine centers and labor
CRP takes into account WIP inventory,scheduled receipts, planned orders, etc.

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Example: Capacity Requirements Planning

Suppose that 35,000 hrs of final assembly time are available per week. Also, an equivalent of 7,500 hrs is available in the form of WIP inventory Therefore, in reality, we have 2,500 hrs of excess capacity

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Finite loading
Allocation of capacity to work orders subject to available capacity constraint

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Input/Output Analysis
Monitoring consumption of capacity during execution phase Compare actual inputs with planned inputs and Actual outputs with planned outputs

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Major Issues
Master Production Scheduling and MRP
Execution of plans Best Manufacturing Practices (BMP)

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Master Production Scheduling (MPS)

Master Production Schedule (MPS) is an anticipated build schedule for finished (end) products given production capacity constraints and capacity utilization desires
MPS is NOT a forecast MPS is a primary input to generate material requirement plans (MRP)

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Master Production Scheduling (MPS)

In an ATO environment, Final Assembly Schedule (FAS) is the actual build schedule, i.e. it is the build schedule with the exact end-item options

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Master Production Scheduling (MPS)

MPS is the basis for key inter-functional trade-offs
For example, order processing activity coordinates marketing and production perspectives

MPS is the basis for developing manufacturing budgets in line with financial budgets
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Master Production Scheduling (MPS)

In determining MPS trade-offs need to be made between market and resource perspectives
Accommodating too many changes in MPS results in productivity loss and inefficiency Allowing too few changes in MPS may result in poor customer service and increase inventory

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Master Production Scheduling (MPS)

Hence, marketing and production should work together to respond to product mix changes

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Master Production Scheduling (MPS)

Hitting the production plan defined: (FAS) = (MPS) = Production Plan
Ideally, the planned and actual resource usage to meet the market requirements should be the same

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Master Production Scheduling (MPS)

Master Production Scheduling

Detailed Capacity Planning

Material Requirement Planning

Material and Capacity Plans

Order Release

Purchasing

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Material Requirements Planning (MRP)

Detailed material plans for dependent demand items Period-by-period plans for parts and raw material MRP is a priority-setting scheme

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Independent vs. Dependent Demand

Independent Demand Items A Dependent Demand Items

B(4)

C(2)

D(2)

E(1)

D(3)

F(2)

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Material Requirements Planning (MRP)

Basic Inputs to MRP
MPS Bill of Material (BOM)
A list and amount of components and/or material required to produce a product

Inventory Status File

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Major Issues
Master Production Scheduling and MRP
Execution of plans Best Manufacturing Practices (BMP)

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Execution of Plans
Execution of plans uses the purchased or internally manufactured materials for order fulfillment
Shop-floor scheduling and control --releasing production orders and control Vendor scheduling and control --- releasing purchasing orders and follow-up

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Execution of Plans
Measurement of actual execution results relative to the plans Order status information and warning signals to MRP Peaks and valleys in capacity requirements make execution more complicated and difficult

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Major Issues
Master Production Scheduling and MRP
Execution of plans Best Manufacturing Practices (BMP)

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Best Manufacturing Practices (BMP) Areas

1. 2. 3. 4. Lead Time Reduction Streamlined Flow Quick Changeover Cellular Manufacturing (Focused Factories) 5. Empowered Teams 6. Cross-Functional Teamwork
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Best Manufacturing Practices (BMP) Areas

7. Employee Involvement & Commitment 8. Process Reliability 9. Continuous Improvement 10. In-Process Quality 11. Seamless Shift Operations 12. Standard Operating Procedures

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Best Manufacturing Practices (BMP) Areas

13. Goal Deployment 14. Visual Management Systems 15. Incentives, Rewards & Recognition 16. Plant Safety, Loss Prevention & Housekeeping

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Best Manufacturing Practices (BMP) Areas

17. High-Performance Leadership 18. Supplier Partnerships 19. Cross-training 20. World-Class Performance Measures

Source: http://www.granite-bay.com/best-manufacturing-practices.html 86

Best Manufacturing Practices: Local Examples

Kohler Generators
http://www.kohlerco.com/hub/powersystem.html

Migrating products from MTO to ATO environments

Use of pull system for final assembly Use of push system for material planning Use of manufacturing cells for subassemblies Exploring commonality of parts

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Best Manufacturing Practices: Local Examples

Kohler Generators
http://www.kohlerco.com/hub/powersystem.html

Innovations in visual inventory management Innovations in managing suppliers

Expanding the scope of vendor-managed inventory Enforcing discipline in deliveries Globalization of supply chain

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Best Manufacturing Practices: Local Examples

Kohler Generators
http://www.kohlerco.com/hub/powersystem.html

Process improvements
New painting technology Optimization software for laser cutting of sheet metal

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