Copyright 2013 by The McGraw-Hill Companies, I nc. All rights reserved.

McGraw-Hill/I rwin
CHAPTER 5: Manufacturing
5-2
The quality imperative
Manufacturing perspective
Manufacturing strategy
Contemporary
manufacturing
developments
Overview of manufacturing
5-3
The 8 dimensions of product quality
Performance
How well the product performs in
comparison to how it was
designed to perform
Reliability
Likelihood that the product will
perform throughout its expected
life
Durability
The actual life expectancy of the
product
Conformance
Does the product meet its
specifications as designed
Features
What different functions or tasks
can the product perform
Aesthetics
Is the styling, color, workmanship
pleasing to the customer
Serviceability
What is the ease of fixing or
repairing the product if it fails
Perceived Quality
Based on customers experience
before, during and after they
purchase a product
5-4
Total quality management (TQM) is a
philosophy focused on meeting customer
expectations with respect to all needs,
across all company functions, and
recognizing all customers, both internal and
external
TQMs basic conceptual elements are:
Top Management commitment and support
Maintaining a customer focus in product, service
and process performance
Integrated operations within and between
organizations
A commitment to continuous improvement
Total quality management
5-5
Management standards have been established
by the ISO in both quality and environment
The International Organization for
Standards (ISO) was formed after World
War II
ISO 9000International Quality Standard
First one established in 1994
Current revision is ISO 9000:2008
ISO 14000International Environmental
Standard
First one established in 1998
Current revision is ISO 14001:2004
5-6
ISO certified suppliers are frequently
preferred by procurement departments
They have to conform to an externally defined
set of standards for quality and delivery of
service
They are usually more open to sharing supply
chain information
They welcome building relationships with their
customers
They have formal processes in place for continual improvement of
their products, services, and processes
They are easier for procurement folks to initially qualify and
periodically audit
Certification is done by an external register agency
Firms have to be re-certified every three years
5-7
Brand power is the measure of customer
preference based on reputation, product
quality and supply chain capabilities

Volume is traditionally treated according
to the principle of economy of scale
Average cost to produce product declines as
manufacturing volume increases
Particularly important when high fixed costs
are present

Variety involves frequent product runs
and high repetition of small lot sizes
Processes that can rapidly switch production
from one product to another while retaining
efficiency are said to have economy of
scope
Manufacturing perspectives
5-8
Constraints interact with volume and variety to create
realistic manufacturing plans
Capacity is how much can you produce in a given unit of time
Equipment - how flexible is it?
Is one particular machine or work task a bottleneck?
Setup/Changeover considers how quickly you can change from
one variety of product to another

Leadtime is the measure of elapsed time between release
of a work order to the shop floor and completion of all work
on the product to achieve ready-to-ship status

Manufacturing perspectives continued
5-9
Job shop process creates a custom product for each
customer
Batch process manufactures a small quantity of an item in
a single production run
Line flow process has standard products with a limited
number of variations moving on an assembly line through
stages of production
Continuous process is used to manufacture such items
as gasoline, laundry detergent and chemicals
Modifications of the above can create new options
Mass customization produces a unique product quickly and at a
low cost using a high volume production process
The four basic manufacturing processes
5-10
Engineer to Order (ETO) is used when products are unique and
extensively customized for the specific needs of individual customers
Make to Order (MTO) relies on relatively small quantities, but more
complexity
Requires much interaction with customer to work out design and specification
Usually shipped direct to customer
Assemble to Order (ATO) is when base components are made,
stocked to forecast, but products are not assembled until customer
order is received
Manufacturing postponement in action
Make to Plan (MTP) features economies of scale, large volumes,
long production runs, low variety, and distribution channels
Manufacturing strategies should match
market requirements
5-11
The choice of strategy determines which
performance cycles the customer experiences
Figure 5.1 Manufacturing Strategy and Performance Cycles
Product Design Procurement Cycle Manufacturing Cycle Customer Delivery
Cycle Cycle
ETO
Strategy
MTO
Strategy
ATO
Strategy
MTP
Strategy
Total Cycle Experienced by Customers.
5-12
Product
Variety
Volume Strategy Customer
Leadtime
Job Shop Very high Very low ETO/MTO Very long
Batch High Low ETO/MTO/
ATO
Long
Line Flow Limited High ATO/MTP Short
Continuous Very limited Very high MTP Very short
Table 5.1
Manufacturing process characteristics
5-13
Total cost of manufacturing (TCM)
includes:
Procurement and production activities
Inventory and warehousing activities
Transportation activities
TCM generally expressed as cost per unit
Procurement and production costs go down
as volume goes up
Inventory and warehousing costs go up as
volume goes up
Transportation costs go down as volume
goes up, but level off at high volumes
Total cost of manufacturing
5-14
TCM per unit ranging across strategic
alternatives
/MTS
Figure 5.2 Total Cost of Manufacturing
5-15
Mass customization
Lean systems
Six sigma
Requirements planning
Design-for-manufacture
Design-for-logistics
Contemporary manufacturing developments
5-20
Individually customized products produced at the low
cost of standardized, mass produced goods.
Objective
Wide product menu with reasonable cost and lead time
Examples: Dell computers, Cannondale bicycles
Mass customization:
What is it?
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Product Customization
Conventional Demand-Supply Chain
MC Demand-Supply Chain
Standard Custom
5-21
Market Characteristics:
Sufficiently large customer segment that values translatable variety
Turbulent, dynamic market
Unpredictable demand - but not entirely unpredictable!
Little impact of regulation or other constraints
Product/Process Characteristics:
Modular or adjustable product building blocks
Predictable components/functions interactions
Standardized process/skill building blocks
Reasonable lead times, steps, work content
Mass customization characteristics
5-33
Lean is a philosophy of
manufacturing that
emphasizes the
minimization of the amount
of all resources (including
time) used in the operation
of a company
Defining principle is the
elimination of waste
Lean systems
5-34
Produce only the products that customers want
Produce products only as quickly as customers want them
Produce products with perfect quality
Primary objectives of lean systems
Produce in the minimum possible lead times
Produce products with features that customers want, and no others
Produce with no waste of labor, materials, or equipment
Produce with methods that reinforce the occupational development of
workers
5-35
Six sigma approach is to
identify sources of variability
and then systematically reduce
them
The six sigma goal is to
achieve a process standard
deviation that is six times
smaller than the range of
outputs allowed by the
products design specification

Six sigma quality concepts
5-36
Example of a six sigma quality level
Produces defect free product
99.74 percent of the time
66,807 defects per million parts
produced
Produces defect free product
99.99966 percent of the time
3.4 defects per million parts
produced
Three sigma quality level
Six sigma quality level
5-39
For more complex manufacturing
(MTO, ETO) where large numbers of
components or assemblies are used to
produce a final product
Procurement has a key role in insuring
all the components are obtained on
time to make an end item
Key information requirement is the bill of
materials (BOM)
Planning sometimes spans multiple
manufacturing locations (e.g. Boeing
787 Dreamliner)
Materials Requirements Planning (MRP)
5-40
Design-for-assembly focuses on minimizing the
number of parts and on easing assembly
processes.
Design-for-product-servicability focuses on easing
the disassembly and reuse of product components.
Design-for-six-sigma systematically evaluates the
consistency with which a good or service can be
produced or delivered given the capabilities of the
processes used.
Design for manufacture
5-41
Design for logistics includes the
requirements and framework for
logistical support in the early
phases of product development
Considers
What we are going to make
How we are going to make it
What logistics capabilities we need
How we are going to integrate our
suppliers into the process
Any subassembly manufacture by
suppliers
The need for outsourcing of some
parts or assemblies
Design for logistics