PRODUCTION AND OPERATIONS MANAGEMENT

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PRODUCTION AND OPERATIONS MANAGEMENT
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OBJECTIVES

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

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Some Questions
What does your Firm ACTUALLY do? How does it
work?

• Do it MAKE or ASSEMBLE something? Is there a
  Difference? So What?
• How do you decide How to do something?

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Theory of Firm Growth and Optimal Organization
Size
C

• HIGH
• Unprofitable

A
TOTAL EXPENSES Direct (Variable) and Indirect
(Fixed/Overhead)
B
LOW Profitable
STRATEGIC CHOICE Maintain Size and Decrease
Expenses or Consider Optimal Size
MOST Internal
FEW Market
FIRM SIZE Controlled Resources
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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

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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

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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

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HENRY FORD

• Moving Assembly Line Dramatically Reduced
  Manufacturing Costs While Delivering Consistent,
  Low-Priced Product
• Factory based on Chicago Meat Cutting Plants

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FORD MODEL T

• First Produced
• Oct. 1908
• By 1927, 15,000,000 Produced
• Any Color if its Black

• 2004 EPA All Vehicles Average 21 MPG
• Model T Fuel Economy 25 MPG

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ASSEMBLY LINE BENEFITS

• Initially, took 14 hours to Assemble Model T -
  Mass Production reduced Time to 1 Hour and 33
  Minutes
• Model Ts 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

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FORD ASSEMBLY LINES

•  

Magneto Assembly

• Assembly Line pulled by Ropes

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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

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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

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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

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FORD WORKING CONDITIONS

• Assembly Line Work Monotony 300 Turnover
• 2 per Day and a 9-Hour Shift
• Fords 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 wont Eat his Supper,
  Hes so done out. Cant 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

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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

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MASS PRODUCTION
Example of Market Orientation Flaw
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TOYOTAS 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

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TOYOTAS ORIGINS

• During WWII, Toyoda became Toyota and
  manufactured Motorcycles and Delivery Trucks
• After WWII, Japanese Industry needed to re-build

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TOYOTAS ORIGINS
1956 Taiichi Ohno went to US to study Fords
Manufacturing Facilities

• Found Mass Production Principles not Applicable
• Scale of Japanese Markets
• Desire for Product Variety
• Unable to Afford Resources and Inventories

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TOYOTAS 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

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TOYOTAS ORIGINS

• Toyota Exports its First Car The Forgettable
  Crown
• Under-powered and Unstable at Freeway speeds,
  Production is stopped in 1959

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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

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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.
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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

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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

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

• Result of TPS is Just-in-Time Inventory System
• Comes from Systems 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

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TOYOTA PRODUCTION SYSTEM

• Why Hasnt 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

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

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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)

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SUPPLY CHAIN MANAGEMENT
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SUPPLY CHAIN MANAGEMENT