MANUFACTURING

PROCESSES

Lecturer: Nguyen Van Dung Ph.D.

Slides are based on slides accompanied the book “OPERATIONS AND
SUPPLY CHAIN MANAGEMENT”, with improvement from the lecturer

Chapter Seven
McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
 LO7–1: Understand what a manufacturing process
is.
 LO7–2: Explain how manufacturing processes are
organized.
 LO7–3: Analyze simple manufacturing processes.

7-2
Production Processes
 Depending on the item being produced, the supply
chain can be
 very long with subcontractors and manufacturing plants
spread out over the globe (such as an automobile or
computer manufacturer)
 short where parts are sourced and the product is made
locally (such as a house builder)

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 Production Processes

 Production processes
are used to make any
manufactured item.
 Step 1 – Source the
parts needed
 Step 2 – Make the
product
 Step 3 – Deliver the
product

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 Production Processes
 Consumer products such as televisions or clothes, customers
normally want these products “on-demand” for quick delivery
from a local department store.
 Manufacturers of these products build them ahead of time in
anticipation of demand and ship them to the retail stores
where they are carried in inventory until they are sold.
 Custom products (i.e. military airplanes) (sản phẩm tùy chỉnh)
 Ordered with very specific uses in mind and that need to be
designed and then built to the design.
 The time needed to respond to a customer order, called the
lead time, could easily be years
7-2
Production Process Terms
 Lead time (thời gian đáp ứng) – the time needed to
respond to a customer order
 Customer order decoupling point (điểm tách đôi) –
where inventory is positioned to allow entities in the
supply chain to operate independently
 Lean manufacturing – a means of achieving high
levels of customer service with minimal inventory
investment

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 Production Process Terms
Customer order decoupling point
 Example: if a product is stocked at a retailer, the customer

pulls the item from the shelf and the manufacturer never sees
a customer order.
 Inventory acts as a buffer to separate the customer from
the manufacturing process.
 Selection of decoupling points is a strategic decision that
determines customer lead times and can greatly impact
inventory investment.
 The closer this point is to the customer, the quicker the
customer can be served.
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Production Process Terms
 Trade-off where quicker response to customer demand
comes at the expense of greater inventory investment
because finished goods inventory is more expensive than
raw material inventory.
 An item in finished goods inventory typically contains all
the raw materials needed to produce the item ==> it
includes the cost of the material, plus the cost to fabricate
the finished item.

7-8
Types of Firms
Make-to-Stock

• Serve customers from finished goods inventory

Assemble-to-Order

• Combine a number of preassembled modules to meet a customer’s

specifications

Make-to-Order

• Make the customer’s product from raw materials, parts, and components

Engineer-to-Order

• Work with the customer to design and then make the product

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Make-to-Stock
 Examples of products include the following:
 Televisions
 Clothing
 Packaged food products
 Essential issue in satisfying customers is to balance the level
of inventory against the level of customer service.
 Easy with unlimited inventory, but inventory costs money
 Trade-off between the costs of inventory and level of customer
service must be made. Trade-off can be improved by better
estimates of customer demand, by more rapid transportation
alternatives, by speedier production, and by more flexible
manufacturing
 Use lean manufacturing to achieve higher service levels for
a given inventory investment.

7-6
 Khám phá quy trình sản xuất mì ăn liền tại nhà máy
Acecook

 https://www.youtube.com/watch?v=nyipI5PlvKM

11
 Quy trình sản xuất xe Ô tô Vinfast trên kênh
Discovery / Tăng tốc tới tương lai

 https://www.youtube.com/watch?v=HMVJ3crEJIg

12
Assemble-to-Order
 A primary task is to define a customer’s order in terms of
alternative components because these are carried in
inventory.
 An example is the way Dell Computer makes their desktop
computers. The number of combinations that can be made may be
nearly infinite (although some might not be feasible)
 One capability required is a design that enables as much
flexibility as possible in combining components.
 There are significant advantages from moving the customer
order decoupling point from finished goods to components.

7-13
Assemble-to-Order
 The number of finished products is usually substantially
greater than the number of components combined to
produce the finished product.
 Example: a computer for which there are four processor
alternatives, three hard disk drive choices, four DVD
alternatives, two speaker systems, and four monitors
available.
 If all combinations of these 17 components are valid, they
can be combined into a total of 384 different final
configurations.
 It is much easier to manage and forecast the demand for 17
components than for 384 computers.
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Make-to-Order/Engineer-to-Order
 Boeing’s process for making commercial aircraft is an
example.
 Customer order decoupling point could be in either raw
materials at the manufacturing site or the supplier
inventory.
 Depending on how similar the products are, it might not
even be possible to preorder parts.
 Rather than inventory, the emphasis in these environments
may be more toward managing capacity of critical
resources such as engineering and construction crews.

7-15
 Boeing 787 Dreamliner được lắp ráp thế nào?

 https://www.youtube.com/watch?v=RID_AREUln8

16
 How Production Processes Are
Organized
 Process selection refers to the strategic decision of
selecting which kind of production processes to use to
produce a product or provide a service.
 Example: in the case of Toshiba notebook computers, if the
volume is very low, we may just have a worker manually
assemble each computer by hand. In contrast, if the
volume is higher, setting up an assembly line is appropriate.
 Five basic structures (project, workcenter, manufacturing cell,
assembly line, and continuous process)

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 Production System Design
 In a project layout, the product (by virtue
of its bulk or weight) remains in a fixed
location. Manufacturing equipment is
moved to the product rather than vice
versa.
 Construction sites (houses and bridges)
and movie shooting lots are examples of
this format.
 A high degree of task ordering is common.
 A project layout may be developed by
arranging materials according to their
assembly priority.
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 Production System Design
 A workcenter layout,
sometimes referred to as a
job shop, is where similar
equipment or functions
are grouped together, such
as all drilling machines in
one area and all stamping
machines in another.

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 Production System Design
 Most common approach to developing this type of
layout is to arrange workcenters in a way that
optimizes the movement of material.
 Optimal placement often means placing workcenters
with large interdepartmental traffic adjacent to each
other.
 Sometimes is referred to as a department and is
focused on a particular type of operation.

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 Production System Design
 A manufacturing cell layout is a dedicated area where
products that are similar in processing requirements are
produced.

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 Production System Design
 These cells are designed to perform a specific set of
processes, and the cells are dedicated to a limited range of
products.
 A firm may have many different cells in a production area,
each set up to produce a single product or a similar group of
products efficiently, but typically at lower volume levels.
 Manufacturing cells are widely used in metal fabricating,
computer chip manufacture, and assembly work.

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 Production System Design
 An assembly line is where work processes are
arranged according to the progressive steps by which
the product is made.
 https://www.youtube.com/watch?v=_8wqSJ1zrcs

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 Production System Design
 These steps are defined so that a specific production
rate can be achieved.
 Discrete products are made by moving from
workstation to workstation at a controlled rate,
following the sequence needed to build the product.
 Examples include the assembly of toys, appliances,
and automobiles.

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 Production System Design
 A continuous process is similar to an assembly line in that
production follows a predetermined sequence of steps, but
the flow is continuous (such as with liquids) rather than
discrete (rời rạc).
 Such structures are usually highly automated and, in effect,
constitute one integrated “machine” that may operate 24
hours a day to avoid expensive shutdowns and startups.
 Conversion and processing of undifferentiated materials such
as petroleum, chemicals, and drugs are good examples.

7-25
An example of a continuous process 26
Product–Process Matrix: Framework Describing Layout
Strategies

Product–process matrix
A framework depicting when the different production process types are
typically used, depending on product volume and how standardized the
product is. 7-27
Break-Even Analysis
 Defined as standard approach to choosing among
alternative processes or equipment.
 Model seeks to determine the point in units produced where
a company will start making profit on the process.
 Model seeks to determine the point in units produced where
total revenue and total cost are equal.

Purchase cost of process or equipment

Breakeven Demand =
Price per unit - Cost per unit
or
Total fixed costs of process or equipment
=
Unit price to customer - Variable cost per unit
7-28
Example 7.1: Break-Even Analysis

 Buy for $200 per unit

 Make on lathe (máy tiện) for $75 per unit
 Make on machining center for $15 per unit
 Buy has no fixed costs
 Lathe has $80,000 fixed costs
 Machining center has $200,000 fixed costs

7-29
Example 7.1: Total Cost for Each Option

 Purchase
Cost = $200 x Demand

 Produce Using Lathe

Cost = $80,000 + $75 x Demand

 Produce Using Machining Center

Cost = $200,000 + $15 x Demand

7-30
Example 7.1: Total Cost for Each Option

 Whether we approach the solution to this problem as cost

minimization or profit maximization really makes no
difference as long as the revenue function is the same for all
alternatives.
 Exhibit 7.3 shows the break-even point for each process. If
demand is expected to be more
than 2,000 units (point A), the machine center is the best
choice because this would result in
the lowest total cost.
 If demand is between 640 (point B) and 2,000 units, the
semiautomatic lathe is the cheapest. If demand is less than
640 (between 0 and point B), the most economical course is to
buy the product. 7-31
Example 7.1: Costs Shown Graphically

7-32
Example 7.1:Finding Points A and B
Point A
$80,000 + $75  Demand = $200,000 + $15  Demand
$80,000 + $60  Demand = $200,000
$60  Demand = $120,000
Demand = $120,000 = 2,000
$60

Point B
$200  Demand = $80,000 + $75  Demand
$125  Demand = $80,000
Demand = $80,000 = 640
$125 7-33
 Example 7.1:Finding Points A and B
 Consider the effect of revenue, assuming the part sells for
$300 each. As Exhibit 7.3 shows, profit (or loss) is the vertical
distance between the revenue line and the alternative process
cost at a given number of units. At 1,000 units, for example,
maximum profit is the difference between the $300,000
revenue (point C) and the semiautomatic lathe cost of
$155,000 (point D).
 For this quantity, the semiautomatic lathe is the cheapest
alternative available. The optimal choices for both minimizing
cost and maximizing profit are the lowest segments of the
lines: origin to B, to A, and to the right side of Exhibit 7.3 as
shown in green.
7-34
Manufacturing Process Flow Design
 Manufacturing process flow design – a method to
evaluate the specific processes that material follow
as they move through the plant
 Focus should be on the identification of activities
that can be minimized or eliminated
 Movement and storage
 The fewer the moves, delays, and storage, the better
the flow

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The Charts
 Assembly drawing: an exploded view of the product
showing its component parts
 Assembly chart: defines how parts go together, their order
of assembly, and overall flow pattern
 Operation and route sheet: specifies operations and
process routing
 Process flowchart: denotes what happens to the product as
it progresses through the production facility

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Sample Assembly Drawing

7-37
Sample Assembly Chart

7-38
Sample Operation and Route Sheet

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Sample Flowchart

7-40
 Example 7.2: Manufacturing Process
Analysis
 A process usually consists of (1) a set of tasks, (2) a flow of material and
information that connects the set of tasks, and (3) storage of material and
information.
 1. Each task in a process accomplishes, to a certain degree, the
transformation of input into the desired output.
 2. The flow in a process consists of material flow, as well as flow of
information. The flow of material transfers a product from one task to the
next task. The flow of information helps in determining how much of the
transformation has been done in the previous task and what exactly
remains to be completed in the present task.
 3. When neither a task is being performed nor a part is being
transferred, the part has to be stored. Goods in storage, waiting to be
processed by the next task, are often called work-in-process inventory.
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 Example 7.2: Manufacturing Process
Analysis
 Process analysis involves adjusting the capacities and balance
among different parts of the process to maximize output or
minimize the costs with available resources.

7-42
Example 7.2: Manufacturing Process
Analysis
 15 workers, eight-hour shift, assembly line moves at
the rate of 150 components per hour
 Incentive pay of 30¢ per good part
 Can hire 15 more workers for second shift if
needed
 All but molding from outside vender

7-43
Example 7.2: Molding
 11 Machines
 One usually down
 One operator per machine

 25 parts per hour

 Paid 20¢ per part
 Overtime is 30¢ per part
 Employment is flexible
 Currently6 employees
 4 more available

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Example 7.2: Remaining Costs
 Raw materials are 10¢ per part
 Electricity is 2¢ per part
 Purchased parts cost 30¢ per component

 Other weekly expenses

 Rentis $100
 Other employees receive $1,000

 Accounting depreciation is $50

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The following process flow diagram describes the process. The tasks have been
shown as rectangles and the storage of goods (inventories) as triangles.

46
Example 7.2: Questions to Answer
a. Determine the capacity of the process. Are the
capacities balanced?
b. If the molding process were to use 10 machines
instead of 6, what would be the capacity of the
entire process?
c. If the company went to a second shift, what would
be the new capacity?
d. Determine the cost per unit output when the
capacity is 6,000 per week or 10,000 per week.

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Example 7.2: Capacity of Entire
Process

7-48
Example 7.2: Increasing Molding to 10
Machines

7-49
Example 7.2: Increasing Assembly
Capacity

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Example 7.2: Cost for 6,000 Parts per
Week

7-51
Example 7.2: Cost for 10,000 Parts
per Week

As you can see, our cost per unit has been reduced by spreading
the fixed cost over a greater number of units. 7-52