UNIVERSITY OF TRANSPORT HOCHIMINH CITY
CHAPTER 3:
SUPPLY CHAIN OPERATIONS: PRODUCTION AND
DISTRIBUTION
1
CHAPTER 3
3.1. SUPPLY CHAIN OPERATIONS: PRODUCTION AND DISTRIBUTION
3.2. PRODUCTION
3.3. DISTRIBUTION
2
CHAPTER 3 OBJECTIVES
After completing this chapter, students should achieve the following objectives:
✓ Present an overview of manufacturing operations
✓ Analyze product design principles and requirements
✓ Select manufacturing processes based on cost factors
✓ Analyze steps for continuous process improvement
3
3.1 INTRODUCTIOn
PLANNING
• Demand
Forecasting
• Product Pricing
• Inventory
Management
DISTRIBUTION SOURCING
• Order • Purchasing
Management • Payment
• Schedule
Delivery
• Return Process
PRODUCTION
• Product Design
• Production
Process
• Facilities
Management
4
3.2 PRODUCTION ACTIVITIES
3.2.1. Introduction
3.2.2. New product demand
3.2.3. Principles of product development
3.2.4. Product design
3.2.5. Design of operating procedures
3.2.6. Continuous process improvement
5
3.2.1. Introduction
Product Including goods and services, which are the output factors of the operation & production
process.
Process How to do something, usually consisting of steps or activities.
Production is the activity of combining input factors such as labor, capital, land (basic
Production
inputs) and/or raw materials (intermediate inputs) to create goods and services
activities (products, output, output).
Production Design, implement, and control activities that transform raw material into desired goods
management and services, while implementing the company's business strategy.
Operations Manage the production of goods and services according to customer requirements
Management in terms of time and quality, with minimum cost, maximum efficiency and
productivity.
6
3.2.2. New product demand
- Every product goes through 4 major stages of
its life: Introduction – Growth – Maturity –
Decline
- Product life cycle is usually calculated in months
or years.
- All options that a company can choose to
maintain profits in the Decline stage:
▪ Introduce new products
▪ Improve existing products
▪ Improve production methods
FIGURE 3.1: Product life cycle
7
3.2.3. Principles of product development
• Components
• Product Design
Simplify
the
product
• Product/Market • Standardized Product
• Centralized Process Details
• Centralized Plant Product Product • Production Line
specializa standardi Standardization
tion • Modularization
zation
8
Exercise 1: Product Design
Choose a familiar or favorite product. Is there a way to redesign that product to make it
easier for users to use?
9
3.2.4. Product design
Application
- Product design determines the shape of the
supply chain and impacts product cost and
availability.
- The participation and coordination between
departments (design, purchasing, production,
...) in the product design process can create the Low
following advantages: production
cost
+ Reduced time to market
+ Reduced changeover costs
+ Better product quality
+ Lower system costs Environmental
ly friendly
10
3.2.5. Design of operating procedures
Process design is the development and design of the component steps/activities within
that process.
Product design
Product quality requirements
Factors Product demand
affecting
Production Number of products, production
process capacity
Customer engagement level
Environmental factors
Make-or-Buy Decision
11
❖ Forms of production organization
• Production line
- Production elements are organized into
assembly lines
- Including continuous production lines &
repetitive production lines
- High efficiency with large-scale production FIGURE 3.2: Production line
organization
• Production interruption
- Batch production
- Production teams are organized into
production groups using similar skills or
equipment
- Flexible, however, high production costs
• Project based production
- For large and complex projects
- Products may remain in one location during
complete assembly
FIGURE 3.3: Project based production
- Product location should be avoided due to high
transportation costs
12
❖ Production models
Production model Characteristic
- Goods are produced before orders are received.
- Accurate demand forecasting and effective inventory control are
Make-to-stock (MTS)
required
- Suitable for continuous production
- Goods are manufactured after receiving orders
- Finished products include standard parts and some optional details
according to customer's choice
- Suitable for using repeatable production processes
Make-to-order (MTO)
- Includes models:
+ Assemble-to-order (ATO)
+ Build-to-order (BTO)
+ Engineer-to-order (ETO)
13
Select the corresponding production model in the following cases:
1. With 2 days left until My’s birthday, My call to a cake shop to order a 20
cm pink strawberry cake and a congratulatory message. After receiving My's
request, the cake shop came up with an idea and made the cake exactly as
ordered.
2. Today is My’s birthday, My went to the cake shop near her house and
chose a cake that the bakery had already made and displayed in the
cupboard.
3. Today is My’s birthday, so My went to a bakery near her house and picked
up a cake that the bakery had already made with toppings on the tray next to
it. The bakery arranged the toppings on the cake and put it in a box for her to
take home.
14
❖ Select production process
Evaluate component costs and use the break-even method to make decisions.
+ Fixed costs: are costs that do not change according to the output of goods
For example: set-up costs, costs of machinery, etc.
+ Variable costs: are costs that change according to the output of goods
For example: labor costs, material costs, etc.
Exercise:
The process design department of a company has two production options to choose. Option A has
a fixed cost for set-up and machinery of VND 50 million and a variable cost of VND 40,000/unit.
Option B requires set-up and the use of a specialized machine with a total cost of VND 450 million
and a variable cost of VND 15,000/unit. Let x be the number of units produced.
A, Calculating the break-even point
B, If the company needs to produce 20,000 units/year, which option is good?
15
3.2.6. Continuous process improvement
Step 1:
Select the object
- Continuous process improvement includes the steps
and techniques used to analyze and improve processes. Step 2:
Data Collection
Step 3:
Improve Data Analysis
productivity
Step 4:
Propose and develop improvements
People
focus Step 5:
Implement the improvement
Step 6:
Follow-up
16
Step 1: Select the object
• Observe everything
• Ask about Activities
Observe
• Consider the economic factors
• Consider the human factors
• Pareto analysis
Select • Cause and effect diagram
17
Pareto analysis
Steps to perform Pareto analysis:
Step 1. Determine how to categorize the data: by problem, cause, nonconformance, etc.
Step 2. Choose a unit of measurement ($ or frequency)
Step 3. Collect data over an appropriate time period
Step 4. Summarize the data by ranking the items in descending order according to the chosen unit
of measurement.
Step 5. Calculate the total cost.
Step 6. Calculate the percentage for each item.
Step 7. Construct a bar chart showing the percentage for each item and a line chart showing the
cumulative percentage.
18
Example: Pareto Analysis
A product has many error and the data collected has recorded the following types of failures
with the following frequencies: Type A – 11 times, Type B – 8 times, Type C – 5 times, Type D –
60 times, Type E – 100 times, Type F – 4 times, Other – 12 times.
(a) Construct a table summarizing the failure data in decreasing order of frequency.
(b) From this table, construct a Pareto chart
Error type Frequency Ratio (%) Accumulated Ratio (%)
19
Exercise: Pareto Analysis
A company's production line has an error and the data collected on the cause of the problem gives
the following results: part A— $5720, part B— $10,500, part C— $890, part D— $1130, and part
F— $700.
Complete the following table, listing the defects in order of decreasing importance.
Construct a Pareto chart.
Error type Cost Ratio (%) Accumulated Ratio (%)
20
Cause and Effect Diagram - Root Cause Finding Tool
Step 1: Identify the problem to be investigated.
Step 2: Generate some ideas about the root causes of the problem.
Typically, all possible root causes can be classified into 6 categories:
• Materials.
• Machines.
• People.
• Methods.
• Working environment.
Step 3: Analyze all possible sub-causes that lead to each main cause
Step 4: Once all the causes have been listed, identify the most likely root
causes and address them.
21
Step 2: Record information
Draw the main Complete the
Activity
List information operating process
Classification
process diagram flowchart
- Divide and use - The diagram - The diagram includes
geometric symbols for includes main the sequence of
each type of activity operating activities, decision
activities and making steps, etc.
inspection
Activity activities.
Check
Move
Store
Delay
Decision
22
Practice drawing process diagrams
Draw a flow chart of your daily activities from waking up (Starting activity: open your eyes)
to going to class (Ending activity: sitting in class).
Suggest: Use the symbols introduced in the previous slide to complete the flow chart.
Activity
Check
Move
Store
Delay
Decision
23
Exercise: Draw a diagram of the ballpoint pen
assembly process.
The pen is assembled from 3 main parts:
upper shell, ink tube and lower shell.
Num
Activity Detail
ber
1 Attach the pen clip to the upper housing
2 Install the button to the upper housing
3 Install the rotor to the upper housing
Activity
4 Press the ball into the ink cartridge
5 Install the nib into the ink cartridge
6 Inject ink into the ink cartridge
Check 1 Check the cartridge
7 Insert the ink cartridge into the upper
8 housing
Activity 9 Insert the spring into the cartridge
Screw the lower and upper housings
together
2 Check pen operation
Check
3 Last check
24
Step 3: Data Analysis
- Purpose: find the cause and propose improvement options
- Some notes when performing data analysis:
+ Open perspective
+ Examine each part and the whole process
+ Apply Little’s Law to analyze the process through the relationship between production
speed, throughput and inventory
Apply Little’s Law in service part
25
Step 4: Propose and plan improvements
- Some principles for developing improvement options:
+ Eliminate unnecessary work
+ Combine activities where possible
+ Rearrange the order of work for better efficiency
+ Simplify wherever possible
26
Step 5: Implement the improvement
The following issues should be considered when implementing:
+ What is the appropriate time for implementation?
+ What is the implementation method?
+ Who will be involved?
- At the time of deployment, conduct a test run to ensure that all
equipment and tools are operating smoothly
- The deployment should be carried out over a long enough period of
time for the operations team to become familiar with and proficient in
the work. FIGURE 3.5: Learning curve
Step 6: Follow-up
- Ensure that the improvement plan is implemented correctly
- Evaluate the effectiveness of the improvement.
- If the desired effectiveness is not achieved, the company needs to
change/adjust the improvement plan
27