Operations Management: Production Processes

Approaches to Product Process

• Continuous Process: operates on a basis of continuous flow without interruption, difficult to differentiate the product, low cost becomes the "order winner" in very price-sensitive markets, highly standardized, automated, operate at capacity, and minimal inventories and high volume of production.
• Assembly Line: a linear sequence of operations, the product moves from one step to the next in a sequential manner usually by a conveyor system, difficult to make changes in the product itself or the volume of flow, resulting in inflexibility of operations, requires large amounts of capital investment and must have high volume to justify the investment.
• Batch Process: manufacturing in batches or lots that flow as a unit from one work center to another, each of these products can have a different flow path, and some products actually skip certain work centers making the flow jumbled and intermittent, uses general-purpose equipment that is not specialized to make just one particular product, labor is more skilled and flexible in its ability to make different products.
• Job Shop: a special case of the batch process, the product is made in batches, usually in small lot sizes, but the product must be made to customized order, uses general-purpose equipment and has a jumbled flow, has high flexibility for product mix and volume of production, but the costs are generally higher since the volume and standardization are low.
• Project: used for unique or creative single products, materials and labor are brought to the project site and the project itself is stationary, difficult planning and scheduling problems are common so difficult to automate, labor must be highly skilled with the unique nature of the product or service being made.

5Vs

• Volume: relates to the quantity of production or sales, low cost becomes the "order winner" in very price-sensitive markets.
• Velocity: relates to the speed at which products are produced and delivered to customers.
• Variability: relates to the mix of products produced and the ability to customize products.
• Visibility: relates to the ability to track and manage inventory, production, and delivery.
• Victory: refers to the ability to win in the market by excelling in one or more of the 5Vs.

Mass Customization

• Mass customization: a strategy to provide custom products in lot sizes of one in high volume.
• Depends on variability of scope—that is, a high variety of products from a single process.
• Reduces the average unit cost due to production of several products by the same process.

Mass Customization Components

• Modular production and assemble-to-order (ATO): modular production provides a variety of options by using an assemble-to-order process.
• Fast changeover: production is digitally controlled and each order is uniquely identified by a bar code, or other identifier, that specifies the customer’s options, nearly zero changeover time on equipment.
• Postponement of options: delays some supply chain activities such as assembly, packaging, labeling, and painting until true customer demand is revealed, while building products in semi-finished forms based on the projection of their future demand.
• Decoupling point: the point at which we move from the base product to customized products.

Case Study - Tesla

• No specific notes on Tesla as the text does not provide any information about Tesla's production process.

Job Shop Production

• Each product has a different flow path, and some products skip certain work centers, resulting in a jumbled and intermittent flow.
• General-purpose equipment is used, and labor is skilled and flexible to make different products.
• Job shop production is suitable for made-to-order products, such as plastic parts, machine components, sheet metal parts, custom signs, and artificial limbs.

Approaches to Product Process

• Job shop production is a special case of batch processing, where products are made in batches, usually in small lot sizes, but customized to order.
• The flow is jumbled, and the costs are generally higher due to low volume and standardization.
• Project production is used for unique or creative single products, where materials and labor are brought to the project site, and the project itself is stationary.

Approaches to Order Fulfillment

• Make-to-Order (MTO) production starts after customer orders, and each job in the process is associated with a particular customer.
• There is no finished goods inventory, and the advantage is higher flexibility to customize orders with no finished goods inventory costs.
• The disadvantage is intermittent production with slower response to customer demand with a large volume.

Assemble-to-Order (ATO)

• ATO is a hybrid of MTO and Make-to-Stock (MTS), where subassemblies are made-to-stock, but the final assembly is made-to-order.
• The ATO process builds subassemblies in advance of demand, and when the customer order is received, the subassemblies are taken from inventory and assembled together.
• The advantage is less finished goods inventory, and faster fulfillment of customer orders, while the disadvantage is work-in-process inventory.

Process Selection Decisions

• The Process Characteristics Matrix helps in selecting the right process, considering factors such as volume, variability, and visibility.
• The matrix categorizes processes into continuous assembly line, batch, job shop, and project production, and matches them with suitable products.

Five Vs

• The Five Vs framework by Michael Porter considers volume, velocity, variability, visibility, and victory in developing a value-adding strategy.
• A company should focus on a few dimensions to excel and continually trade off one competitive dimension for another.

Case of Tesla

• Tesla's supply chain is vertically integrated, controlling sales, service, and charging networks, and manufacturing key components in-house.
• Tesla secured direct supply deals with mining companies for critical minerals and metals, reducing dependency on external suppliers.
• Tesla also developed and produced its proprietary battery cells to supplement its current supply chain, aiming for cost-effective scalability and greater volume security.

Push Strategy

• A strategy that 'pushes' products to end users or customers through sales promotions and incentives.
• Relies heavily on long-term forecasts of customer demand, which can be error-prone.
• Can lead to building up unwanted inventory, failing to meet changing demand patterns.

Make-to-Order (MTO)

• Start production after customer orders.
• Each job is associated with a particular customer.
• No finished goods inventory.
• Advantages: higher flexibility to customize orders, no finished goods inventory costs.
• Disadvantages: intermittent production, slower response to customer demand with large volumes.

MTO Performance Measures

• Lead time: the length of time it takes to design, make, and deliver the product.
• Orders completed on time (%): comparing customer request dates with promise dates.

MTO as a Pull Strategy

• A demand-driven strategy that determines production, distribution, and service delivery schedules based on actual customer demand.
• Makes and distributes what is "pulled" from the end user or customer at the rate of their true demand requirements.
• Better adapts to changes in customer tastes, preferences, and expectations without producing and distributing unwanted products.

Assemble-to-Order (ATO)

• A hybrid of MTO and Make-to-Stock (MTS).
• The subassemblies are made-to-stock, but the final assembly is made-to-order.
• Advantages: less finished goods inventory, faster fulfillment of customer orders.
• Disadvantages: work-in-process inventory.

Process Characteristics Matrix

• A matrix that categorizes process types based on their characteristics:
  • Continuous process (e.g., automobile assembly, oil refining)
  • Batch process (e.g., machine shop, wine production)
  • Job shop process (e.g., machine shop, custom jewelry)
  • Project process (e.g., speculation homes, commercial paintings)

Five Vs

• The victory model, which suggests that a company can increase its competitive advantage by developing a value-creating or value-adding strategy.
• Five Vs: volume, velocity, variability, visibility, and victory.

Mass Customization

• A strategy that delays some supply chain activities until true customer demand is revealed.
• Builds products in semi-finished forms (generic, grey products) based on projected demand.
• Customizes products immediately in production and distribution facilities close to customers.
• Examples: Toyota, Citroën, and Peugeot's joint factory in the Czech Republic.

Postponement Strategy

• A strategy that delays final product customization as far downstream as possible.
• The point at which we move from the base product to customized products is called the decoupling point.
• Example: Dell's decoupling point is the point in the production process where core PC platforms are configured into final products demanded by customers.

Agility

• A strategy that prioritizes speed of reaction and ability to tailor operations to demands from individual customers.
• Implies that agility puts service first, even if it means slightly higher costs.

Case of Tesla

• Tesla is the world's most valuable automotive company with an annual revenue of $81 billion and a market capitalization exceeding $800 billion.
• Tesla has invested heavily in building production capacity, developing new technologies, and creating a global electric vehicle supply chain.
• Tesla's journey began with hand-crafted production of the Roadster and evolved to mass production with the Model S sedan.