Procurement and Manufacturing Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

Procurement and

Manufacturing

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

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• 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 customer’s experience before, during and after they purchase a product

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4-15Figure 4.2 Flexibility and Cost of Design Changes

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• 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

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• 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 considers how flexible it is

• Is one particular piece a bottleneck?– Setup/Changeover considers how quickly can you 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

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• Job shop 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

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• Make to Stock (MTS) features economies of scale, large volumes, long production runs, low variety, and distribution channels [Also known as MTP – make-to-plan]

• 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 practiced here

• 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

4-22Figure 4.3 Manufacturing Strategy and Performance Cycles

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• 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

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/MTS

Figure 4.4 Total Cost of Manufacturing

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• 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”

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Produce only the products that customers want

Produce products only as quickly as customers want them

Produce products with perfect quality 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

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• 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 product’s design specification

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• 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

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• Resources must be procured, positioned, and coordinated as needed to support the manufacturing strategy selected

• Four approaches to achieve this are:– Just-in-time (JIT)– Materials requirements planning (MRP)– Design for logistics– Performance based logistics

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• For more complex manufacturing (MTO, ATO) 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 Dreamliner)

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• 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 do 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

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• Initiated by US Department of Defense to purchase performance outcomes instead of individual transactions defined by product specifications

• Government specifies desired outcomes and lets suppliers determine the best way to meet those requirements

• Currently limited to government purchasing but business organizations are expected to adopt the practice

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