Www.izmirekonomi.edu.tr Asst. Prof. Dr. Mahmut Ali GÖKÇE, Izmir University of Economics Spring, 2008 1-1 ISE360 Production Planning and Control Asst.Prof.Dr.

www.izmirekonomi.edu.trAsst. Asst. Prof. Dr. Prof. Dr. Mahmut Ali Mahmut Ali GÖKÇE, Izmir University of EconomicsGÖKÇE, Izmir University of Economics

SpringSpring, 2008, 20081-1

ISE360 Production Planning and Control

Asst.Prof.Dr. Mahmut Ali GÖKÇE

Industrial Systems Engineering

Chapter 1. Strategy and Competition

www.izmirekonomi.edu.tr

Asst. Asst. Prof. Dr. Prof. Dr. Mahmut Ali Mahmut Ali GÖKÇE, Izmir University of EconomicsGÖKÇE, Izmir University of Economics

SpringSpring, 2008, 20081-3Topic Areas in Operations

Analysis Forecasting Aggregate Planning Inventory Control: Deterministic Environments Inventory Control: Stochastic Environments Supply Chain Management Production Control Systems: MRP and JIT Operations Scheduling Project Scheduling Facilities Planning Quality and Assurance Maintenance and Reliability




Operations

Finance

Marketing

Functional Areas of the Firm



SpringSpring, 2008, 20081-5Time Horizons for Strategic

Decisions1. Long Term Decisions

Locating and Sizing New Facilities Finding New Markets for Products Mission Statement: meeting quality objectives

2. Intermediate Term Decisions Forecasting Product Demand Determining Manpower Needs Setting Channels of Distribution Equipment Purchases and Maintenance

3. Short Term Decisions Purchasing Shift Scheduling Inventory Control




The Elements of StrategyTime Horizon Short Term Intermediate Long Term

Evaluation Cost Quality Profitability Customer satisfaction

Focus Process Technology Market Issues Volume Quality Tasks

Consistency Professionalism Proliferation Changes in the task Explicit goals


SpringSpring, 2008, 20081-7The Elements of Production

and Operations Strategy




History of POM Major Thrust of the Industrial Revolution 1850-

1890. Factories tended to be small. Boss had total control. Little

regard for workers safety or workers rights. Production Manager Position. 1890-1920.

Frederick Taylor champions the idea of “scientific management”.

As complexity grows specializations take hold. Inventory Control Manager Purchasing Manager Scheduling Supervisor Quality Control Manager etc.




Global Competition

Global competition is heating up to an unprecedented degree. It appears that several factors favor the success of some industries in some countries: For example:

Germany: printing presses, luxury cars, chemicals Switzerland: pharmaceuticals, chocolate Sweden: heavy trucks, mining equipment United States: personal computers, software, entertainment Japan: automobiles, consumer electronics




Porter’s ThesisFamed management guru, Michael Porter, has developed a

theory to explain the determinants of national competitive advantage. These include:

Factor Conditions(Land, Labor,Capital, etc.)

Demand Conditions(local marketplace may be more sophisticated/demanding than world marketplace)

Related and Supporting Industries Firm Strategy, structure, rivalry

(e.g.: Germans are strong technically, Italian family structure, Japanese management methods)




Time-Based Competition“Time-based competitors focus on the bigger picture, on the entire

value-delivery system. They attempt to transform an entire organization into one focused on the total time required to deliver a product or service. Their goal is not to devise the best way to perform a task, but to either eliminate the task altogether or perofrm it in parallel with other talks so that over-all system reponse time is reduced. Becoming a time-based competitor requires making revolutionary changes in the ways that processes are organized” (Blackburn(1991).

Being not only the first to market but the first to volume production as well gives a firm a decided advantage. See Table on p. 15 of text.




How Do Firms Differentiate Themselves from Competitors? Low Cost Leaders: Some examples include

WalMart and Costco in Retailing Korean automakers (Hyundai, Kia, etc.) e machines personal computers

High Quality (and price) Leaders. Ex: Mercedes Benz automobiles Rolex Watches (some firms do both: Chevrolet and Cadillac)




Business Process Re-engineering

The process of taking a cold hard look at the way that things are done. Term coined by Hammer and Champy in their 1993 book.

Classic Example: IBM Credit Corporation. The process had been broken down to a series of multiple steps, each having substantial delays. Approval required from 6 days to 2 weeks. The process was re-engineered so that a single specialist would handle a request from beginning to end. The result was that turnaround time was slashed to an average of 4 hours!




Along What Other Dimensions Do Firms Compete? Delivery Speed, Delivery Reliability

Federal Express, United Parcel Service Flexibility

Solectron: provides manufacturing services to many different companies.

Service Nordstrom bases its reputation on providing a

high quality of service to customers




Just-In-Time

JIT is a production control system that grew out of Toyota’s kanban system. It is a philosophy of production control (also know as lean production) that attempts to reduce inventories to an absolute minimum. It has become pretty much a standard way of thinking in many industries (especially the automobile.) We will discuss JIT and its relationship to MRP in Chapter 7.




The Product Life-Cycle Curve


SpringSpring, 2008, 20081-17The Product/Process

Matrix



Break-even Curves for the Make or Buy Problem

Cost to Buy = c1x

Cost to make=K+c2x

K

Break-even quantity




Learning CurvesThe basic concept is that as a worker or an industry gains experience

with a task or product, the process becomes more efficient. Experience has shown that this relationship is accurately described by an exponential function.

Let Y(u) be the number of hours to produce the uth unit. Then the

theory says that Y(u) = a u -b which gives

Y(u) a(2u)-b ______ = _______ = 2-b

Y(2u) a u -b

A typical value is an 80% learning curve which is 2-b = .80.(This gives a value of b = -ln(.80)/ln(2) =0.322.)




An 80% Learning Curve




Prices of Integrated Circuits During the Period 1964-1972




Capacity Strategy

Fundamental issues: Amount. When adding capacity, what is the optimal

amount to add?

Too little means that more capacity will have to be added shortly afterwards.

Too much means that capital will be wasted.

Timing. What is the optimal time between adding new capacity?

Type. Level of flexibility, automation, layout, process, level of customization, outsourcing, etc.




Three Approaches to Capacity Strategy Policy A: Try not to run short. Here capacity must

lead demand, so on average there will be excess capacity.

Policy B: Build to forecast. Capacity additions should be timed so that the firm has excess capacity half the time and is short half the time.

Policy C: Maximize capacity utilization. Capacity additions lag demand, so that average demand is never met.




Capacity Leading and Lagging Demand




Determinants of Capacity Strategy Highly competitive industries (commodities, large

number of suppliers, limited functional difference in products, time sensitive customers) – here shortages are very costly. Use Type A Policy.

Monopolistic environment where manufacturer has power over the industry: Use Type C Policy. (Intel, Lockheed/Martin).

Products that obsolete quickly, such as computer products. Want type C policy, but in competitive industry, such as computers, you will be gone if you cannot meet customer demand. Need best of both worlds: Dell Computer.




Mathematical Model for Timing of Capacity AdditionsLet D = Annual Increase in Demand

x = Time interval between adding capacity

r = annual discount rate (compounded continuously)

f(y) = Cost of operating a plant of capacity y

Let C(x) be the total discounted cost of all capacity additions over an infinite horizon if new plants are built every x units of time. Then

2

2 3

( ) ( ) ( ) ( )

( )(1 ( ) ( )

( )

1

rx rx

rx rx rx

rx

C x f xD e f xD e f xD

f xD e e e

f xD

e




Mathematical Model (continued A typical form for the cost function f(y) is:

Where k is a constant of proportionality, and a measures the ratio of incremental to average cost of a unit of plant capacity. A typical value is a=0.6. Note that a<1 implies economies of scale in plant construction, since

( ) af y ky

(2 ) (2 )2 ( 1.516 for a=.6)

( ) ( )

aa

a

f y k y

f y k y




Mathematical Model (continued)Hence,

It can be shown that this function is minimized at x that satisfies the equation: (Tip: Take logarithm and then apply derivative to find the minimum)

This is known as a transcendental equation, and has no algebraic solution. However, using the graph on the next slide, one can find the optimal value of x or any value of a (0 < a < 1)

( )( )

1

a

rx

k xDC x

e

1rx

rxa

e




The Function ( ) /( 1)uf u u e To Use: Locate the value of

on the axis and the corresponding value

of on the axis.

a

y

x x

u=rx




Issues in Plant Location

Size of the facility. Product lines. Process technology. Labor requirements. Utilities requirements Environmental issues. International considerations Tax Incentives.

Www.izmirekonomi.edu.tr Asst. Prof. Dr. Mahmut Ali GÖKÇE, Izmir University of Economics Spring, 2008 1-1 ISE360 Production Planning and Control Asst.Prof.Dr.

Documents

competition slide

operations strategy

reliability slide

cadillac slide

inventory control manager

total control

long term decisions

short term decisions