Chapter 7: Manufacturing Processes
1. A firm that makes predesigned products directly to fill customer orders has this type
of production environment.
Make-to-Order (MTO) is a production environment where the firm manufactures products
only after receiving a specific customer order. The products are usually standardized and
designed in advance, but the actual production doesn't start until the order is placed. This
contrasts with a Make-to-Stock (MTS) environment where products are manufactured in
anticipation of demand, and inventory is kept in stock. In MTO, there is less risk of
overproduction and inventory holding costs since production is based on actual demand.
2. A point where inventory is positioned to allow the production process to operate
independently of the customer order delivery process.
Decoupling Point is the location in the production process where inventory is held to
separate the production process from customer order fulfillment. It allows the
manufacturing process to continue without being directly dependent on the timing of
customer deliveries. For example, a company may produce certain components in advance
and store them in inventory so that final assembly can happen independently of customer
demand fluctuations. This is critical for maintaining flexibility and reducing lead times in
operations.
3. A firm that designs and builds products from scratch according to customer
specifications would have this type of production environment.
Engineer-to-Order (ETO) is a production environment where each product is designed and
manufactured according to the unique specifications of the customer. Unlike Make-to-
Order, where standard designs are used, in ETO, the product is custom-built from the ground
up, and the design process is often a key part of the production timeline. This type of
environment is common in industries like aerospace, construction, and heavy equipment
manufacturing, where every order is unique and requires engineering expertise.
4. If a production process makes a unit every two hours and it takes 42 hours for the unit
to go through the entire process, what is the expected work-in-process equal to?
The expected Work-in-Process (WIP) is calculated by dividing the total processing time (42
hours) by the time taken to produce each unit (2 hours). In this case, the WIP is:
42 ℎ𝑜𝑢𝑟𝑠
𝑊𝐼𝑃 = = 21 𝑢𝑛𝑖𝑡𝑠.
2 ℎ𝑜𝑢𝑟𝑠/𝑢𝑛𝑖𝑡
This means, at any given time, there are 21 units in various stages of the production process.
This is a simple way of estimating how many units are "in process" at any point before
completion.
5. A finished goods inventory, on average, contains 10,000 units. Demand averages
1,500 units per week. Given that the process runs 50 weeks a year, what is the expected
inventory turn for the inventory? Assume that each item held in inventory is valued at
about the same amount.
Inventory turnover is calculated by dividing the annual demand by the average inventory:
𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑚𝑎𝑛𝑑 = 1,500 𝑢𝑛𝑖𝑡𝑠/𝑤𝑒𝑒𝑘 × 50 𝑤𝑒𝑒𝑘𝑠/𝑦𝑒𝑎𝑟 = 75,000 𝑢𝑛𝑖𝑡𝑠/𝑦𝑒𝑎𝑟.
𝑇ℎ𝑒𝑛,
75,000 𝑢𝑛𝑖𝑡𝑠𝑥𝑦𝑒𝑎𝑟
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 = =7
10,000 𝑢𝑛𝑖𝑡𝑠
This means that the inventory is sold and replaced 7 times a year, which is an indicator of
how efficiently inventory is managed.
6. This is a production layout where similar products are made. Typically, it is scheduled
on an as-needed basis in response to current customer demand.
Batch Production is a production layout where similar items are produced in groups or
batches. The batches are typically made to meet specific customer orders or forecasted
demand. Production is usually set up for a batch of products at a time, and the production
schedule is based on customer needs. This layout allows for more flexibility than continuous
flow production systems but can be less efficient in terms of economies of scale compared
to mass production.
7. The relationship between how different layout structures are best suited depending
on volume and product variety characteristics is depicted on this type of graph.
Product-Process Matrix is a graphical representation that shows the optimal production
layout based on the volume of production and the variety of products. The matrix helps
companies identify the best type of layout for their production process, whether it’s a job
shop (low volume, high variety), batch production (medium volume, medium variety), or an
assembly line (high volume, low variety). This helps ensure that the production system is
aligned with the product characteristics, which can improve efficiency and reduce costs.