production management concepts and basics

7/29/2019 Production management Concepts and basics

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XLRI PGCBM 22

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Operations ManagementProduct/Service-Process Matrix Order

Fulfillment/Decoupling Point/MRP

Soumya Prakash Mishra


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Operations Management

Product/Service-Process Matrix/SCM Basics - Soumya Prakash Mishra XLRI PGCBM 22 Page 2

Product-Process MatrixThe product-process matrix is a tool for analyzing the relationship between the product life cycle and

the technological life cycle. It was introduced by Robert H. Hayes and Steven C. Wheelwright in two

classic management articles published in Harvard Business Reviewin 1979, entitled "Link

Manufacturing Process and Product Life Cycles" and "The Dynamics of Process-Product Life

Cycles." The authors used this matrix to examine market-manufacturing congruence issues and to

facilitate the understanding of the strategic options available to a company.

The matrix itself consists of two dimensions, product structure/product life cycle and process

structure/process life cycle.

The production process used to manufacture a product moves through a series of stages,

much like the stages of products and markets, which begins with a highly flexible, high-costprocess and progresses toward increasing standardization, mechanization, and automation,

culminating in an inflexible but cost-effective process.

The process structure/process life cycle dimension describes the process choice (job shop,

batch, assembly line, and continuous flow) and process structure (jumbled flow,

disconnected line flow, connected line flow and continuous flow) while the product

structure/product life cycle describes the four stages of the product life cycle (low volume to

high volume) and product structure (low to high standardization).

Later writers on the subject sometimes insert an additional stage in the extreme upper-leftcorner of the matrix: the project.

A company can be characterized as occupying a particular region on the matrix (see

accompanying Figure).

This region is determined by the firm's stage in the product life cycle and the firm's choice of

production process. At the upper left extreme, firms are characterized as process oriented or

focused while the lower right extreme holds firms that are said to be product focused.

The decision of where a firm locates on the matrix is determined by whether theproductionsystemis organized by grouping resources around the process or the product.
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PROCESS CHOICES

PROJECT

Projects are briefly included in the discussion since they are sometimes found at the extreme upper-

left corner of the matrix (depending on the author). These include large-scale, one-time, unique

products such as civil-engineering contracts, aerospace programs, construction, etc. They are also

customer-specific and often too large to be moved, which practically dictates that project is the

process of choice.

JOB SHOP

If a manufacturer had broken a large cog on an outdated (i.e., replacement parts are no longer

available) but still useful machine, she would take the broken cog to a machine shop where they


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would manufacture a new one from scratch. This machine shop (along with tool and die

manufacturers) is probably the primary example of manufacturing job shops.

A job shop is the producer of unique products; usually this product is of an individual nature and

requires that the job shop interpret the customer's design and specifications, which requires a

relatively high level of skill and experience. Once the design is specified, one or a small number of

skilled employees are assigned to the task and are frequently responsible for deciding how best to

carry it out. Generally, resources for processing have limited availability with temporary in-process

storage capability needed while jobs wait for subsequent processing. If the product is not a one-time

requirement, it is at least characterized by irregular demand with long periods of time between

orders. Efficiency is difficult since every output must be treated differently.

In a job shop, the outputs differ significantly in form, structure, materials and/or processing required.

Each unique job travels from one functional area to another according to its own unique routing,

requiring different operations, using different inputs, and requiring varying amounts of time. Thiscauses the flow of the product through the shop to be jumbled, following no repetitive pattern.

Job shops and batch operations (upper-left quadrant of the matrix) are usually organized around the

function of the individual machines. In other words, machinery is grouped according to the purpose it

serves or the capabilities it possesses. For example, in a machine shop, hydraulic presses would be

grouped in one area of the shop, lathes would be grouped into another area of the shop, screw

machines in another area, heat or chemical treatment in still another, and so on (also contributing to

the jumbled flow). This is labeled a process layout.

In addition to machine shops and tool and die manufacturers, job shops are also appropriate for usein service operations, since the product is customized and frequently requires different operations.

Service examples include law offices, medical practices, automobile repair, tailor shops, and so

forth.

BATCH

Firms utilizing batch processes provide similar items on a repeat basis, usually in larger volumes

than that associated with job shops. Products are sometimes accumulated until a lot can be

processed together. When the most effective manufacturing route has been determined, the higher

volume and repetition of requirements can make more efficient use of capacity and result insignificantly lower costs.

Since the volume is higher than that of the job shop, many processes can be utilized in repetition,

creating a much smoother flow of work-in-process throughout the shop. While the flow is smoother,

the work-in-process still moves around to the various machine groupings throughout the shop in a

somewhat jumbled fashion. This is described as a disconnected line flow or intermittent flow.
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Examples of batch processing operations include printing and machine shops that have contracts for

higher volumes of a product. Services utilizing batches could be some offices (processing orders in

batches), some operations within hospitals, classes within universities (how many classes have only

one pupil?), and food preparation.

LINE

When product demand is high enough, the appropriate process is the assembly line. Often, this

process (along with continuous; both are in the lower-right quadrant of the matrix) is referred to as

mass production. Laborers generally perform the same operations for each production run in a

standard and hopefully uninterrupted flow. The assembly line treats all outputs as basically the

same. Firms characterized by this process are generally heavily automated, utilizing special-

purpose equipment. Frequently, some form of conveyor system connects the various pieces of

equipment used. There is usually a fixed set of inputs and outputs, constant throughput time,

and a relatively continuous flow of work. Because the product is standardized, the process canbe also, following the same path from one operation to the next. Routing, scheduling, and control are

facilitated since each individual unit of output does not have to be monitored and controlled. This

also means that the manager's span of control can increase and less skilled workers can be

utilized.

The product created by the assembly-line process isdiscrete; that is, it can be visually

counted (as opposed to continuous processes which produce a product that is not naturally

divisible). Almost everyone can think of an example of assembly-line manufacturing (automobile

manufacturing is probably the most obvious). Examples of assembly lines in services are car

washes, class registration in universities, and many fast food operations.

Because the work-in-process equipment is organized and sequenced according to the steps

involved to produce the product and is frequently connected by some sort of conveyor system, it is

characterized as flowing in a line. Even though it may not be a straight line (some firms utilize a U-

shaped assembly line) we say that it has a connected line flow. Also, firms in the lower-right

quadrant (line and continuous) are classified as having a product layout.

Continuous

Continuous manufacturing involves lot-less production wherein the product flows continuously

rather than being divided. A basic material is passed through successive operations (i.e., refining

or processing) and eventually emerges as one or more products. This process is used to produce

highly standardized outputs in extremely large volumes. The product range is usually so narrow

and highly standardized that it can be characterized as a commodity.

Considerable capital investment is required, so demand for continuous process products must be

extremely high. Starting and stopping the process can be prohibitively expensive. As a result, the


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processes usually run 24 hours a day with minimum downtime (hence, continuous flow). This

also allows the firm to spread their enormous fixed cost over as large a base as possible.

The routing of the process is typically fixed. As the material is processed it usually is transferred

automatically from one part of the process to the next, frequently with self-monitoring and adjusting.

Labor requirements are low and usually involve only monitoring and maintaining themachinery.

Typical examples of industries utilizing the continuous process include gas, chemicals, electricity,

ores, rubber, petroleum, cement, paper, and wood. Food manufacture is also a heavy user of

continuous processing; especially water, milk, wheat, flour, sugar and spirits.

USING THE MATRIX

The product-process matrix can facilitate the understanding of the strategic options available to a

company, particularly with regard to its manufacturing function. A firm may be characterized as

occupying a particular region in the matrix, determined by the stages of the product life cycle and itschoice of production process (es) for each individual product. By incorporating this dimension into its

strategic planning process, the firm encourages more creative thinking about organizational

competence and competitive advantage. Also, use of the matrix provides a natural way to involve

manufacturing managers in the planning process so they can relate their opportunities and decisions

more effectively with those of marketing and of the corporation itself, all the while leading to more

informed predictions about changes in industry and the firm's appropriate strategic responses.

Each process choice on the matrix has a unique set of characteristics. Those in the upper-left

quadrant of the matrix (job shop and batch) share a number of characteristics, as do those in

the lower-right quadrant (assembly line and continuous). Upper-left firms employ highly skilled

craftsmen (machinists, printers, tool and die makers, musical instrument craftsmen) and

professionals (lawyers, doctors, CPAs, consultants). Hence upper-left firms can be characterized

as labor intensive. Since upper-left firms tend to utilize general-purpose equipment, are seldom

at 100 percent capacity, and employ workers with a wide range of skills, they can be very flexible.

However, there is a difficult trade-off between efficiency and flexibility of operations. Most job shops

tend to emphasize flexibility over efficiency. Since efficiency is not a strong point of upper-left

firms, neither is low-cost production. Also, the low volume of production does not allow upper-left

firms to spread their fixed costs over a wide enough base to provide for reduced costs. Finally,

upper-left firms are also more likely to serve local markets.

Lower-right firms require production facilities that are highly specialized, capital intensive,

and interrelated (therefore, inflexible). Labor requirements are generally unskilled or semi-skilled

at most. Much of the labor requirement deals with merely monitoring and maintaining equipment.

Lower-right firms are also more likely to serve national markets and can be vertically integrated.

Hayes and Wheelwright relate three areas affected by the use of the product-process matrix:

distinctive competence, management, and organization.


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DISTINCTIVE COMPETENCE.

Distinctive competence is defined as the resources, skills, and organizational characteristics that

give a firm a comparative advantage over its competitors. Simply put, a distinctive competence is the

characteristic of a given product that causes the buyer to purchase it rather than the similar product

of a competitor. It is generally accepted that the distinctive competencies are cost/price, quality,flexibility and service/time. By using the product-process matrix as a framework, a firm can be

more precise about its distinctive competence and can concentrate its attention on a restricted set of

process decisions and alternatives and a restricted set of marketing alternatives. In our discussion,

we have seen that the broad range of worker skills and the employment of general-purpose

equipment give upper-left firms a large degree of flexibility while the highly specialized, high-

volume environment of lower-right firms yields very little in the way of flexibility. Therefore, flexibility

would be a highly appropriate distinctive competence for an upper-left firm. This is especially true

when dealing with the need for flexibility of the product/service produced. Lower-right firms find it

very difficult to sidetrack a high-volume operation because of an engineering change in the product.

An entire line would have to be shut down while tooling or machinery is altered and large volumes of

possibly obsolete work-in-process are accounted for. Upper-left firms, however, would have none of

these problems with which to contend. It must be noted though that lower-right firms may possess

an advantage regarding flexibility of volume.

Quality may be defined a number ways. If we define quality as reliability, then lower-right firms could

claim this as a distinctive competence. Lower-right firms would have the high volume necessary to

quickly find and eliminate bugs in their product, yielding more reliability to the end user. However, if

we define quality as quality of design (that is, "bells and whistles" hings that embody status, such as

leather seats in an automobile or a handcrafted musical instrument), then quality would be seen as a

possible distinctive competence of upper-right firms.

Service may also be defined in more ways than one. If one defines service as face-to-face

interaction and personal attention, then upper-left firms could claim service as a distinctive

competence. If service is defined as the ability to provide the product in a very short period of time

(e.g., overnight), then service as a distinctive competence would belong to lower-right firms.

Finally, remember that high volume, economies of scale, and low cost are characteristics of

firms in the lower-right quadrant of the matrix. Upper-left firms produce low volumes

(sometimes only one) and cannot take advantage of economies of scale. (Imagine, for instance,

what you would have to pay for a handcrafted musical instrument.) Therefore, it is obvious that price

or cost competitiveness is within the domain of lower-right firms.

MANAGEMENT

In general, the economics of production processes favor positions along the diagonal of the

product-process matrix. That is, firms operating on or close to the diagonal are expected to

outperform firms choosing extreme off-diagonal positions. Hayes and Wheelwright provide the


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example of a firm positioned in the upper-right corner of the matrix. This would appear to be a

commodity produced by a job shop, an option that is economically unfeasible. A firm positioned in

the lower-left corner would represent a unique one-time product produced by a continuous process,

again not a feasible option. Both examples are too far off the diagonal. Firms that find themselves

too far off the diagonal invite trouble by impairing their ability to compete effectively. While firms

operating in the near vicinity, but not exactly on the diagonal, can be niche players, positions farther

away from the diagonal are difficult to justify. Rolls Royce makes automobiles in a job shop

environment but they understand the implications involved. Companies off the diagonal must be

aware of traps it can fall into and implications presented by their position.

Also, a firm's choice of product-process position places them to the right or left of competitors along

the horizontal dimension of the matrix and above or below its competitors along the vertical

dimension of the matrix. The strategic implications are obvious. Of course, a firm's position on the

matrix may change over time, so the firm must be aware of the implications and maintain the

capability to deal with them appropriately. The matrix can provide powerful insights into the

consequences of any planned product or process change.

Use of the product-process matrix can also help a firm define its product. Hayes and Wheelwright

relate the example of a specialized manufacturer of printed circuit boards who produced a low-

volume, customized product using a highly connected assembly-line process. Obviously, this would

place them in the lower-left corner of the matrix; not a desirable place to be. This knowledge forced

the company to realize that what they were offering was not really circuit boards after all, but design

capability. So, in essence, they were mass-producing designs rather than the boards themselves.

Hence, they were not far off the diagonal at all.

ORGANIZATION

Firms organize different operating units so that they can specialize on separate portions of the total

manufacturing task while still maintaining overall coordination. Most firms will select two or more

processes for the products or services they produce. For example, a firm may use a batch process

to make components for products, which are constructed on assembly lines. This would be

especially true if the work content for component production or the volume needed was not sufficient

for the creation of a dedicated line process. Also, firms may need separate facilities for different

products or parts, or they may simply separate their production within the same facility. It may even

be that a firm can produce the similar products through two different process options. For example,

Fender Musical Instruments not only mass produces electric guitars (assembly line) but also offers

customized versions of the same product through the Fender Custom Shop (job shop). Again, the

matrix provides a valuable framework for diagnostic use in these situations.


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OTHER USES OF THE PRODUCT-PROCESS MATRIX

Additional uses of the matrix include:

Analyzing the product entry and exit.

Determining the appropriate mix of manufacturing facilities, identifying the key manufacturing

objectives for each plant, and monitoring progress on those objectives at the corporate level.

Reviewing investment decisions for plants and equipment in terms of their consistency with

product and process plans.

Determining the direction and timing of major changes in a company's production processes.

Evaluating product and market opportunities in light of the company's manufacturing

capabilities.

Selecting an appropriate process and product structure for entry into a new market.

It should be noted that recent empirical research by Sohel Ahmad and Roger G. Schroeder found

the proposed relationship between product structure and process structure to be significant but notstrong. In general terms, they found that as the product life cycle changes the process life cycle also

shifts in the consistent direction, but not necessarily along the diagonal. Some 60 percent of the

firms studied did not fall on the diagonal. The researchers propose that this occurred because new

management and technological initiatives have eliminated or minimized some of the inherent trade-

offs found on the Product-Process Matrix. They classify these initiatives as processing technology,

product design and managerial practice (e.g., TQM and JIT). Therefore, Ahmad and Schroeder

recommend that the matrix be conceptualized as having three axes instead of two. They propose an

x-axis (product life cycle stages), a y-axis (process life cycle stages), and a z-axis that represents an

organization's proactive effort towards adopting and implementing these innovative initiatives. As a

firm moves away from the origin along the z-axis, it becomes able to minimize some of the trade-offs

seen in the Product-Process Matrix framework.


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SERVICE PROCESS MATRIXThe Service Process Matrix is a classification matrix of service industry firms based on the

characteristics of the individual firm's service processes. The matrix was derived by RogerSchmenner and first appeared in 1986. Although considerably different, the Service Process Matrixcan be seen somewhat as a service industry version of Wheelwright and Hayes' Product-ProcessMatrix. The Service Process Matrix can be useful when investigating the strategic changes in serviceoperations. In addition, there are unique managerial challenges associated with each quadrant of the

matrix. By payingclose attention to the challenges associated with their related classification, service

firms may improve their performance.

The vertical axis on the matrix, as shown in Figure 1, is a continuum with high degree of laborintensity on one end (bottom) and low degree of labor intensity on the other end (top).

The horizontal axis is a continuum with high degree of customer interaction and customization onone ends (right) and low degree of customer interaction and customization on the other end (left).

This results in a matrix with four quadrants, each with a unique combination of degrees of laborintensity, customer interaction and customization.

Service Factory
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The upper left quadrant contains firms with a low degree of labor intensity and a low degree ofinteraction and customization. This quadrant is labeled "Service Factory."

Low labor intensity and little or no customer interaction or customization makes this quadrant similarto the lower right area of the Product-Process Matrix where repetitive assembly and continuous flowprocesses are located. This allows service firms in this quadrant to operate in a fashion similar to

factories, hence the title "Service Factory." These firms can take advantage of economies of scaleand may employ less expensive unskilled workers as do most factories.

Firms classified as service factories include truck lines, hotels/motels, and airlines.

Service Shop

The upper right quadrant contains firms with a low degree of labor intensity but a high degree ofinteraction and customization. The upper right quadrant is labeled "Service Shop."

Hospitals, auto repair shops and many restaurants are found in this quadrant.

Mass Services

The lower left quadrant contains firms with a high degree of labor intensity but a low degree ofinteraction and customization. This quadrant is labeled "Mass Service."

Mass service providers include retail/wholesale firms and schools.

Professional Service

Finally, the lower right quadrant contains firms with a high degree of labor intensity and a highdegree of interaction and customization. The lower right quadrant is labeled "Professional Service."This quadrant is similar to the upper left section of the Product-Process Matrix where job shops andbatch processes are found.

Doctors, lawyers, accountants, architects, and investment bankers are typical service providers thattend to be labor intense and have a high degree of customer interaction and customization.

MOVEMENT WITHIN THE MATRIX

On Wheelwright and Hayes' Product-Process Matrix processes appear on a diagonal running from

the upper left corner to the lower right corner. Firms that position themselves directly on the diagonal

are seen to be the most efficient. Similarly, a notional diagonal can be said to run from the upper left

corner to the lower right corner of the Service Process Matrix. Schmenner states that many of the

segmentation steps taken by service firms have been toward the diagonal. The attraction seems to

be better control. From the perspective of the matrix, need for control would be greater for serviceshops, which lie completely above the diagonal, and mass services, which lie below the diagonal.

The need for control is not as great for service factories and professional services, as evidenced by

the fact that the diagonal transverses each of those quadrants.

Schmenner also states that most services that have changed their positions within the matrix over

time have tended to move up the diagonal. This, of course, implies a decrease in the degree of

interaction and customization and a decrease in labor intensity. Those firms most affected by a


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move up the diagonal would be found in the professional services where labor intensity and

interaction/customization was high. Obviously, any move up the diagonal, be it with professional

services, mass service, or service shops, would be a movement toward the service factory.

The legal field, a Professional Service, is a prime example of "up the diagonal" movement. Most

have surely noticed the increase of television advertising on the part of some in the legal profession.

Other than personal injury, the most prolific amount of advertising seems to come from lawyers

seeking cases involving bankruptcy and uncontested divorces. Obviously, these are the cases that

require the least amount of customization. By handling this case "in bulk" the attorney also lowers

the labor intensity by handling multiple cases in one trip to the court house and enjoys economies of

scale just like a factory, a Service Factory.

The traditional restaurant had a considerable degree of customization, customer interaction putting it

into the Service Shop category. The fast food industry has taken restaurants into the Service Factory

area through the dramatic elimination of customization and lowering of labor intensity. However, the

degree of standardization may vary.

Witness Wendy's where you can "hold the pickles; hold the lettuce, special orders don't upset us!"

Also, hospitals have seen movement within the matrix. Consider Shouldice Hernia Centre in

Canada, a hospital that specializes in one type of surgery so that customization is at it lowest,

allowing them to run as a service factory rather than a service shop. Even banking has made

movement toward the Service Factory with the universal use of ATMs.

Retailing has also seen changes within the Matrix. Warehouse stores such as Sam's Club and

Internet sales have allowed retailers to move from Mass Service to Service Factory by drastically

cutting labor intensity. However, some have gone in the opposite direction by becoming full-service

boutiques and specialty stores stressing customer interaction, customization and labor intensity.

MANAGERIAL CHALLENGES

There are a number of proposed challenges for management that are inherent in a firm's position

within the Service Process Matrix. For firms with low labor intensity, plant and equipment choices are

extremely important, implying the need to closer monitor technological advances. Since capacity is

some-what inflexible, scheduling service delivery is more important so demand must be managed.

For firms with high labor intensity, workforce issues such as hiring, training, employee development

and control, employee welfare and workforce scheduling are critical. Firms with low customer

interaction and customization face more marketing challenges than other firms.

The need to "warm up" the service dictates special attention to physical surroundings. For these

firms standard procedures are safe to use. In addition, the classic managerial pyramid with many

layers and a rigid relationship between layers is appropriate. Firms with high degrees of interaction

and customization must manage higher costs resulting from lack of economies of scale. In addition,

higher skilled labor costs more and demands more attention, benefits, quality of work life and

benefits. The managerial hierarchy tends to be flatter and less rigid.


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RECENT CHANGES

While the concept of the Service Process Matrix is conceptual or theoretical in nature, it should be

noted that in 2000, Rohit Verma conducted an exploratory study, using a broad sample of

quantitative data, in an attempt to validate the idea that management challenges do differ across the

different types of services represented by the quadrants of the Matrix.

Verma's findings did not closely match the proposed expectations. Capital decisions, technological

advances and scheduling service delivery are perceived to be more of a challenge in high

interaction/customization. Conversely, hiring, training, employee scheduling, and loyalty were found

to become less important at interaction/customization increases.

The importance of managing employee career advancement and marketing of services increases as

labor intensity increases. Capital decisions and fighting cost increases were found to be more

important for the service factory and the service shop than for mass service and professional

service. Starting new operations, workforce scheduling and managing organizational hierarchy were

found to be more important for service factory and service shops.

As such, only four of 22 management challenge relationships proposed by the Service Process

Matrix were supported by the empirical analysis. Despite this, the Product Service Matrix continues

to be the standard classification scheme utilized in service research.

In 2004, Schmenner updated the Service Process Matrix by redefining the axes and the resulting

diagonal. He had earlier stated that the lure of the diagonal was the need for control but later

changed his mind. He stated that in retrospect, the issue was not control, but productivity that results

from "swift, even flow." The concept of Swift, Even Flow argues that productivity increases as the

flow of products and information becomes faster and variability decreases. Hence the X axis of the

Service Process Matrix changes from interaction and customization to degree of "variation," in the

sense that variation occurs in providing the service not that the firm provides a variety of services. Of

course, interaction and customization are sources of variation.

The Y axis changes from labor intensity to relative throughput time. Throughput time is the time that

elapses between the services or facilitating good's initial availability until the service is complete. The

Service Process Matrix is now represented by Swift, Even Flow: Swift = relative throughput time;

Even Flow = degree of variation; rather than degree of labor intensity and degree of customer

interaction and customization.

Redefining the axes of the Matrix then causes the classification of services to change from the typeservice itself to the provider of the service. For example, in the previous Matrix, restaurants

appeared as service shops. With the new axes, traditional restaurants are still service shops but

gourmet restaurants could be considered professional service and fast food restaurants (with their

quick throughput time) would be service factories. Hence, particular services may now be spread out

in the Matrix.


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In order to improve productivity then, firms would strive to move left and upward or up the diagonal.

The previously noted challenges for managers remain the same. Consider Southwest Airlines whose

turnarounds are done swiftly with little variation.

Although, not all services fit cleanly into these quadrants, it is instructive, providing insight into

service productivity. It also provides insight into how service firms differentiate themselves from each

other as well as helping to explain why successful service firms achieved their positions and

maintained them.

Main material

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http://www.enotes.com/product-process-matrix-reference/product-process-matrix

MANUFACTURING AND SUPPLY CHAINManufacturing is a Part of the Supply Chain

Decoupling Point

Order fulfillment(in British English order fulfillment) is in the most general sense the complete process

from point of sales inquiry to delivery of a product to the customer. SometimesOrder fulfillmentis

used to describe the more narrow act of distribution or the logistics function, however, in the broadersense it refers to the way firms respond to customer orders.

The first research towards defining order fulfillment strategies was published by Mather (1988) andhis discussion of the P:D ratio, whereby P is defined as the production lead-time, i.e. how long it

takes to manufacture a product, and D is the demand lead-time, i.e. how long customers are willing

to wait for the order to be completed. Based on comparing P and D, a firm has several basic

strategic order fulfillment options:

Engineer-to-Order (ETO)- (D>>P) Here, the product is designed and built to customer

specifications; this approach is most common for large construction projects and one-off

products, such as Formula 1 cars

Build-to-Order (BTO); syn: Make-to-Order (MTO)- (D>P) Here, the product is based on a

standard design, but component production and manufacture of the final product is linked to the

order placed by the final customer's specifications; this strategy is typical for high-end motor

vehicles and aircraft
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Assemble-to-Order (ATO)- (D


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Decoupling Point

The order fulfillment strategy also determines thede-coupling point in the supply chain, whichdescribes the point in the system where the "push" (or forecast-driven) and "pull" (or demand-driven

see Demand chain management) elements of the supply chain meet.

The decoupling point always is an inventory buffer that is needed to cater for the discrepancybetween the sales forecast and the actual demand (i.e. the forecast error). It has become increasing

necessary to move the de-coupling pointin the supply chain to minimize the dependence onforecast and to maximize the reactionary or demand-driven supply chain elements. Thisinitiative in the distribution elements of the supply chain corresponds to the Just-in-time initiativespioneered by automobile manufacturers in the 1970s.Decoupling Point

Divides the Supply Chain into Forecast and Order driven

Also known as Order Penetration Point/ Push-Pull Boundary

Depends on Order Lead Time versus Production Lead Time.

Direction in which we would like to shift the Decoupling Point?

Lead Time Categories

Product design and development lead time

Order lead time Procurement lead time

Production lead time (throughput time)

Delivery lead time
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The Push-Pull Strategy

The business terms push and pull originated inlogisticandsupply chain managementbut are alsowidely used inmarketing. Wal-Mart is an example of a company that uses the push vs. pull strategy. Apushpullsystemin business describes the movement of a product or information between two subjects.On markets the consumers usuallypull"the goods or information they demand for their needs, while the

offerers or supplierspush"them toward the consumers

In logistic chains or supply chains the stages are operating normally both in push- and pull-manner.Pushproduction is based on forecast demand and pull production is based on actual or consumed demand.The interface between these stages is called the pushpull boundaryordecoupling point
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Push strategy

Another meaning of the push strategy in marketing can be found in the communication between seller

and buyer. Depending on the medium used, the communication can be either interactive or non-

interactive. For example, if the seller makes his promotion by television or radio, it's not possible for the

buyer to interact with. On the other hand, if the communication is made by phone orinternet, the buyerhas possibilities to interact with the seller. In the first case information is just "pushed" toward the buyer,

while in the second case it is possible for the buyer to demandthe needed information according to their

requirements.

Applied to that portion of the supply chain where demand uncertainty is relatively small

Production and distribution decisions are based on long term forecasts

Based on past orders received from retailer's warehouse (may lead toBullwhip effect)

Inability tomeetchanging demand patterns

Large and variable production batches

Unacceptableservice levels

Excessive inventories due to the need for large safety stocks

Less expenditure on advertising than pull strategy

Pull strategy

In a marketing "pull" system, the consumer requests the product and "pulls" it through the delivery

channel. An example of this is the car manufacturing companyFord Australia. Ford Australia only

produces cars when they have been ordered by the customers.

Applied to that portion of the supply chain where demand uncertainty is high

Production and distribution are demand driven

No inventory, response to specific orders

Point of sale(POS) data comes in handy when shared with supply chain partners

Decrease inlead time

Difficult to implement

With a push-based supply chain, products are pushed through the channel, from the production side up to

the retailer. The manufacturer sets production at a level in accord with historical ordering patterns

fromretailers. It takes longer for a push-based supply chain to respond to changes in demand, which can

result in overstocking or bottlenecks and delays (thebullwhip effect), unacceptableservice levelsand

product obsolescence.

In a pull-based supply chain, procurement, production and distribution are demand-driven rather than to

forecast. However, a pull strategy does not always requiremake-to-orderproduction.Toyota Motors

Manufacturingis frequently used as an example of pull production, yet do not typically produce to order.

They follow the "supermarket model" where limited inventory is kept on hand and is replenished as it is

consumed. In Toyota's case,Kanban cardsare used to signal the need to replenish inventory.
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A supply chain is almost always a combination of both push and pull, where the interface between the

push-based stages and the pull-based stages is sometimes known as the pushpull

boundary.[5]

However, because of the subtle difference between pull production andmake-to-

orderproduction a more accuratenamefor this may be thedecoupling point. An example of this would

beDell'sbuild to ordersupply chain. Inventory levels of individual components are determined by

forecasting general demand, but final assembly is in response to a specific customer request. The

decoupling point would then be at the beginning of the assembly line.

Examples And Brainstorming -

http://www.3daycar.com/

Lucknow Example Lawyers

Grandmothers Kitchen
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Product Postponement

Postpone the task of final differentiation of the Product until the latest possible point inthe Supply Chain


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Manufacturing Resources Planning

Manufacturing Resource Planning, also known as MRP II, is a method for the effective planning of

a manufacturer's resources. MRP II is composed of several linked functions, such as business

planning, sales and operations planning, capacity requirements planning, and all related support

systems. The output from these MRP II functions can be integrated into financial reports, such as the

business plan, purchase commitment report, shipping budget, and inventory projections. It has the

capability of specifically addressing operational planning and financial planning, and has simulation

capability that allows its users to conduct sensitivity analyses (answering "what if" questions).

The earliestformof manufacturing resource planning was known as Material Requirements

Planning (MRP). This system was vastly improved upon until it no longer resembled the original

version. The newer version was so fundamentally different from MRP, that a new term seemed

appropriate. Oliver Wight coined the acronym MRP II for manufacturing resource planning.

Inorderto best understand MRP II, one must have a basic understanding of MRP, so we will begin

with a look at MRP and then expand into MRP II.

MATERIAL REQUIREMENTS PLANNING (MRP I)

Material requirements planning (MRP) is a computer-based, time-phasedsystemfor planning and

controlling the production and inventory function of a firm from the purchase of materials to the

shipment of finished goods. All MRP systems are computer based since the detail involved and the

inherent burden of computation make manual use prohibitive. MRP is time fazed because it not only

determines what and how much needs to be made or purchased, but also when.

Material requirements planning first appeared in the early 1970s and were popularized by a book of

the samenameby Joseph Orlicky. Its use was quickly heralded as the new manufacturing panacea,

but enthusiasm slowed somewhat when firms began to realize the difficulty inherent in its

implementation.
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The MRP system is composed of three primary modules, all of which function as a form of input.

These are the master production schedule, the bill-of-materials, and the inventory status file.

Each module serves a unique purpose that is inter-related with the purpose of the other modules,

and produces several forms of usable output.

MASTER PRODUCTION SCHEDULE.

The master production schedule (MPS) is basically the production schedule for finished

goods. This schedule is usually derived from current orders, plus any forecast requirements.

The MPS is divided into units of time called "buckets." While any time frame may be utilized, usually

days or weeks is appropriate. The MPS is also said to be the aggregate plan "disaggregated." In

other words, the plan for goods to be produced in aggregate is broken down into its individual units

or finished goods.

BILL-OF-MATERIALS.The bill-of-materials is a file made up of bills-of-material (BOM). Each BOM is a hierarchical listing

of the type and number of parts needed to produce one unit of finished goods. Other

information, such as the routings (the route through the system that individual parts take on the way

to becoming a finished good), alternate routings, or substitute materials may be also be contained

with the BOM.


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A tool known as a product structure tree is used to clarify the relationship among the parts making

up each unit of finished goods. Figure 1 details how a product structure tree for arolling cartmight

appear on a bill-of-material. This cart consists of a top that is pressed from a sheet of steel; a frame

formed from four steel bars; and a leg assembly consisting of four legs, each with a caster attached.

Each caster is made up of a wheel, a ball bearing, an axle, and a caster frame.

Figure 1

The bill-of-material can be used to determine the gross number of component parts needed to

manufacturer a given number of finished goods. Since a gross number is determined, safety stock

can be reduced because component parts may be shared by any number of finished goods (this is

known as commonality).

The process of determining gross requirements of components is termed the "explosion"

process, or "exploding" the bill-of-material.

Assuming we need 100 rolling carts, we can use our example product structure tree to compute the

gross requirements for each rolling cart component. We can easily see that in order to produce 100

rolling carts, we would need 100 tops, which would require 100 sheets of steel; 100 leg assemblies,which would require 400 legs and 400 casters (requiring 400 wheels, 400 ball bearings, 400 axles,

and 400 caster frames); and 100 frames, which would require 400 bars.

INVENTORY STATUS FILE.

The inventory status file, or inventory records file, contains a count of the on-hand balance of every

part held in inventory. In addition, the inventory status file contains all pertinent information regarding

open orders and the lead time (the time that elapses between placing an order and actually receiving

it) for each item.

Open orders are purchase orders (orders for items purchased outside the firm) or shop orders

(formal instructions to the plant floor to process a given number of parts by a given date) that have

not been completely satisfied. In other words, they are items that have been ordered, but are yet to

be received.

THE MRP PROCESS

The MRP logic starts at the MPS, where it learns the schedule for finished goods (how many

and when).
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It takes this information to the BOM where it "explodes" the gross requirements for all

component parts.

The MRP package then takes its knowledge of the gross requirements for all components

parts to the inventory status file, where the on-hand balances are listed.

It then subtracts the on-hand balances and open orders from the gross requirements for

components yielding the net requirements for each component.

Of course, we now know not only how many components are needed but when they are

needed in order to complete the schedule for finished goods on time. By subtracting the lead

time from the due date for each part, we now see when an order must be placed for each

part so that it can be received in time to avoid a delay in the MPS.

EXPANDING INTO MRP II

With MRP generating the material and schedule requirements necessary for meeting the appropriate

sales and inventory demands, more than the obvious manufacturing resources for supporting the

MRP plan was found to be needed. Financial resources would have to be generated in varying

amounts and timing. Also, the process would require varying degrees of marketing resource support.

Production, marketing, and finance would be operating without complete knowledge or even regard

for what the other functional areas of the firm were doing.

In the early 1980s MRP was expanded into a much broader approach. This new approach,

manufacturing resource planning (MRP II), was an effort to expand the scope of production resource

planning and to involve other functional areas of the firm in the planning process, most notably

marketing and finance, but also engineering, personnel, and purchasing. Incorporation of other

functional areas allows all areas of the firm to focus on a common set of goals. It also provides a

means for generating a variety of reports to help managers in varying functions monitor the process

and make necessary adjustments as the work progresses.

When finance knows which items will be purchased and when products will be delivered, it can

accurately project the firm's cash flows. In addition, personnel can project hiring or layoff

requirements, while marketing can keep track of up-to-the-minute changes in delivery times, lead

times, and so on. Cost accounting information is gathered, engineering input


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Figure 2

is recorded, and distribution requirements planning is performed.

An MRP II system also has a simulation capability that enables its users to conduct sensitivity

analyses or evaluate a variety of possible scenarios. The MRP II system can simulate a certain

decision's impact throughout the organization, and predict its results in terms of customer orders,

due dates, or other "what if" outcomes. Being able to answer these "what if" questions provides a

firmer grasp of available options and their potential consequences.

As with MRP, MRP II requires a computer system for implementation because of its complexity and

relatively large scale. Pursuit of MRP or MRP II in a clerical fashion would prove far too cumbersome

to ever be useful.

In addition to its efficient performance of the data processing and file handling, a computer also

allows the system to run remarkably quick, providing near-immediate results and reports when

asked to simulate a decision.

MRP Wiki

Manufacturing resource planning (MRP II) is defined as a method for the effective planning of allresources of a manufacturing company. Ideally, it addresses operational planning in units, financialplanning, and has a simulation capability to answer "what-if" questions

This is not exclusively asoftwarefunction, but a marriage of people skills, dedication to data baseaccuracy, and computer resources. It is a total company management concept for using humanresources more productively.

While MRP was primarily concerned with materials, MRPII was concerned with the integration of all

aspects of the manufacturing process, including materials, finance and human relations.

MRP and MRPII: General concepts

Material requirements planning (MRP) and manufacturing resource planning (MRPII) are both incremental

information integration business process strategies that are implemented using hardware and modular

software applications linked to a central database that stores and delivers business data and information.

MRP is concerned primarily with manufacturing materials while MRPII is concerned with the coordination

of the entire manufacturing production, including materials, finance, and human relations. The goal of

MRPII is to provide consistent data to all players in the manufacturing process as the product moves

through the production line.

Paper-based information systems and non-integrated computer systems that provide paper or disk

outputs result in many information errors, including missing data, redundant data, numerical errors that

result from being incorrectly keyed into the system, incorrect calculations based on numerical errors, and

bad decisions based on incorrect or old data. In addition, some data is unreliable in non-integrated

systems because the same data is categorized differently in the individual databases used by different

functional areas.
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MRPII systems begin with MRP, material requirements planning. MRP allows for the input of sales

forecasts from sales and marketing. These forecasts determine the raw materials demand. MRP and

MRPII systems draw on a master production schedule, the breakdown of specific plans for each product

on a line. While MRP allows for the coordination of raw materials purchasing, MRPII facilitates the

development of a detailed production schedule that accounts for machine and labor capacity, scheduling

the production runs according to the arrival of materials. An MRPII output is a final labor and machine

schedule. Data about the cost of production, including machine time, labor time and materials used, as

well as final production numbers, is provided from the MRPII system to accounting and finance (Monk

and Wagner).

Explosion And Implosion of BOM

A BOM "explosion" displays an assembly or sub-assembly broken down into its individualcomponents and parts, while a BOM "implosion" displays the linkage of individual parts to anassembly.

A bill of materials "implosion" links component pieces to a major assembly, while a bill ofmaterials "explosion" breaks apart each assembly or sub-assembly into its component parts.

NETTING


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production management concepts and basics

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