PRODUCTION AND OPERATIONS MANAGEMENT

1. PRODUCTION AND OPERATIONS MANAGEMENT

2. OBJECTIVES Introduction to Production Function and Operations Management • Mass Production Approach • Toyota Production System (TPS) Approach • Supply Chain Management

3. Some Questions What does your Firm ACTUALLY do? How does it work? Do it MAKE or ASSEMBLEsomething? Is there a Difference? So What? How do you decide How to do something?

4. Theory of Firm Growth and Optimal Organization Size C A TOTAL EXPENSES Direct(Variable)andIndirect(Fixed/Overhead) B LOW Profitable HIGH Unprofitable STRATEGIC CHOICE Maintain Size and Decrease Expenses or… Consider Optimal Size FEW Market MOST Internal FIRM SIZE Controlled Resources

5. PRODUCTION vs. MANUFACTURING • Production is a Broader Term that Spans both Manufacturing and Services Functions • Applies Resources, People and Machinery, to Convert Inputs into Finished Goods and Services

6. MASS PRODUCTION Mass Production: Makes Outputs available in Large Quantities at Lower Unit Costs than Individually-Crafted Items Characteristics of Mass Production • Labor Specialization • Mechanization • Standardization

7. ASSEMBLY LINES Assembly Line first Introduced by Eli Whitney (Cotton Gin Inventor) to build Muskets for the US Government in 1799 Used Ideas of Specialized Labor and Engineering Standards (Tolerances) to produce Assemblies from Parts in Repeatable Sequence

8. HENRY FORD Moving Assembly Line:Dramatically Reduced Manufacturing Costs While Delivering Consistent, Low-Priced Product Factory based on Chicago Meat Cutting Plants

9. FORD MODEL “T” First Produced: Oct. 1908 By 1927, 15,000,000 Produced Any Color if it’s Black… • 2004 EPA All Vehicles Average: 21 MPG • Model “T” Fuel Economy: 25 MPG

10. ASSEMBLY LINE BENEFITS • Initially, took 14 hours to Assemble Model T - Mass Production reduced Time to 1 Hour and 33 Minutes • Model T’s Price dropped from $1,000 in 1908 to $360 in 1916 • Result was Ford became Dominant Automobile Manufacturer and Assembly Line Method as Dominant Production Approach

11. Assembly Line pulled by Ropes FORD ASSEMBLY LINES Magneto Assembly

12. MASS PRODUCTION MODEL “T” – The Machine that Changed the World • 1914: Ford produced 308,162 cars, more than all 299 other auto manufacturers combined • 1927: Automobile Produced every 24 seconds

13. MASS PRODUCTION “PUSH” Strategy – Driven by Inputs and Objectives Control of Raw Materials and Labor plus Profit Goals = Production Rate separate from Customer Demands and Preferences Performance measured by Budget Variances and Quantitative Results (Defects or Unit Costs per Day, Week or Month), not Quality Standards

14. MASS PRODUCTION • Low Product Variety; Small Orders Not Feasible • Specialized Machinery and Centralized Manufacturing • “Economies of Scale” – High-Speed Sequential Production • Development Costs Spread Over Large Volume: Low Cost per Unit Produced • Low-Skill/Low-Wage Work Force • Large Advertising and Marketing Budgets

15. FORD WORKING CONDITIONS Assembly Line Work Monotony: 300% Turnover • $2 per Day and a 9-Hour Shift Ford’s Response to Working Conditions: • Increased Pay to $5 per Day and Reduced Shifts from 9 Hours to 8 Hours “The Chain System you have is a Slave Driver. My God, Mr. Ford! My Husband has come Home and Thrown Himself Down and won’t Eat his Supper, He’s so done out. Can’t it be Remedied? That $5-a-day is a Blessing; a Bigger One than you Know. But, Oh, They Earn It!” - Wife of Ford Assembly Line Worker

16. MASS PRODUCTION Flaws of Mass Production Approach • Production Levels cannot Stop or Slow: Defects resolved outside Production (Added Costs of Rework) • Long Changeover Times limits Product Variety • Erratic Finished Products Inventory Levels • Incentives and 0% Financing

17. MASS PRODUCTION Example of Market Orientation Flaw

18. TOYOTA’S ORIGINS Toyoda Automated Loom Works 1902 Modification: Loom Stopped Automatically if Thread Broke or Spool Empty - Signal for Attention Result: No Waste from Defective Work and Lower Production Costs

19. TOYOTA’S ORIGINS During WWII, Toyoda became Toyota and manufactured Motorcycles and Delivery Trucks After WWII, Japanese Industry needed to re-build

20. TOYOTA’S ORIGINS Found Mass Production Principles not Applicable: • Scale of Japanese Markets • Desire for Product Variety • Unable to Afford Resources and Inventories 1956 – Taiichi Ohno went to US to study Ford’s Manufacturing Facilities

21. TOYOTA’S ORIGINS Before returning to Japan, Ohno went to an American Grocery Store Discovered Production and Operation Methods that • Were Linked to Customer Actions: Inventories Replenished by Sales (“PULL” Strategy) • Delivered Product Variety and Scale • Minimized Waste

22. TOYOTA’S ORIGINS Toyota Exports its First Car: The Forgettable “Crown” Under-powered and Unstable at Freeway speeds, Production is stopped in 1959

23. TOYOTA PRODUCTION SYSTEM In 1961, Toyota adopts “Systems Perspective” • KAIZEN– Continuous Improvement Attitude: Minimize Waste and Emphasize High Quality Processes are analyzed to eliminate flaws rather than fixing defective products • WASTE – Comprehensive View that includes Time, Resources and Materials • Over-Production • Time Spent Waiting • Unnecessary Movements of Items

24. TOYOTA PRODUCTION SYSTEM • “Waste is anything other than the minimum amount of equipment, materials, parts, space, and workers’ time which are absolutely essential to add value to the product.” • - Shoichiro Toyoda President, Toyota Motor Co.

25. TOYOTA PRODUCTION SYSTEM KANBAN- Downstream Demand drives Upstream Activity: “Pull Strategy” Orders flow “Up” System, not from Top-down Only what is Needed is Ordered and Produced

26. TOYOTA PRODUCTION SYSTEM ANDON– Work Stops when Problem Encountered Counter-measures taken to Cure Cause; Do Not Re-work Defect Authority delegated to Production Team Production and Problem-solving Functions combined. No Special Trouble-shooting Teams

27. TOYOTA PRODUCTION SYSTEM The Inventory Problem: How to Balance Availability, Need and Cost

28. TOYOTA PRODUCTION SYSTEM Result of TPS is “Just-in-Time” Inventory System • Comes from System’s Operation, Not a Requirement of It: Element of “Waste” Management Philosophy • JIT relies on Supplier Relationships that Integrate Inventory Arrivals and Production Needs • JIT depends on Mutual Commitment of Toyota Loyalty and Supplier Performance

29. TOYOTA PRODUCTION SYSTEM Why Hasn’t TPS Been Universally Adopted? • Transition Costs: Short Turnover Times (High Variety) combined with High Quality • Social/Cultural Paradigm: Narrow Focus on Process/Not Product Innovation; “Rules-Based”/ Controlled Organization; Inward Focus

30. World’s Second Largest Manufacturer of Automobiles • About 240,000 Employees • Produces a Vehicle about every Six Seconds • GM now has Negative Shareholders’ Equity

31. SUPPLY CHAIN MANAGEMENT • “A supply chain is a system through which organizations deliver their products and services to their customers.” (Poirier and Reiter, 1996) • “A supply chain is an integrated process wherein raw materials are manufactured into final products, then delivered to customers (via distribution, retail, or both).” (Benita, 1999)

32. SUPPLY CHAIN MANAGEMENT

33. SUPPLY CHAIN MANAGEMENT