Training Programme: Production Plan
- What is happening in manufacturing? Initial activity
- What is a “Production Plan”? Basic definitions
- Types of Production Systems
- Inventory systems: Just in time vs. traditional inventory
- How much to produce?
- Manufacturing and environment
- The future of our production system
- Final activities
- Information sources for this paper
1. What is happening in manufacturing? Initial activity
Watch this TED video about production by Olivier Scalabre: The next manufacturing revolution is here.
Before watching the video:
- What do you know about TED?
- How do you think the manufacturing process has changed in the last century? Do you know who Henry Ford is?
- What changes in the manufacturing process do you think will happen in the next years?
Some vocabulary that could be challenging: Relocating a company offshore, Stockpiling a product, Supply chain, Replenishing the stocks, Lead time, Make-to-order production, Mass production, Customization.
After watching the video answer the following questions.
The transcript of the video will be provided to the students
- Olivier said that our economy growth is stopping and it is not the first time this happens. He talked about “manufacturing revolutions” as the solution. How many “manufacturing revolutions” have already happened? Describe each of these revolutions.
- Olivier talked about attempts to improve our manufacturing system. What improvement attempts have been carried out in order to improve our current manufacturing system? Have they been successful? What do you think of these attempts?
- According to Olivier Scalabre, what is the next manufacturing revolution? What changes will allow this revolution?
- At 3min 40s the video shows examples of elements that are at play in this new revolution. Describe the elements that Olivier does not explain in the video and list some uses or advantages they can have to improve the manufacturing model.
2. What is a Production Plan? Basic Definitions
- What do you think is a Production Plan (PP)?
- What aspects should be covered in the PP?
- Why should a company have a PP (benefits)?
Production Planning (PP) deals with basic concepts of what to produce, when to produce, how much to produce, etc. Production planning includes the use of human resource, raw materials, machines etc.
It addresses a fundamental problem of low productivity, inventory management and resource utilisation. PP seeks efficiency.
Objectives of production planning are as follows:
- Minimize production time: Determining the most efficient start and end times for each production activity. Bottlenecks (constraints or restrictions in the process flow) should be assessed in advance in order to eliminate them.
- Minimize cost: Reducing cost by an effective utilization of resources: raw materials, human resources and equipment.
- Raw materials: Stock of raw material is maintained at a proper level in order to meet the production demands. There is no over-stocking or under-stocking. So it reduces investment in inventory. Suppliers are informed in advance for the requirement of raw materials so there is no problem with the supply chain. Proper materials handling ensures quality products.
- Human resources: Division of workload, assignment of tasks, matching between capability & capacity with job requirements. In order to improve labour efficiency training is provided to the workers. Key or specialized positions may demand extensive training.
- Equipment: There is a regular and steady flow of production. Capacity utilisation is in tune with forecast demand at all the time.
- Customer satisfaction: Offering quality products at lower prices. Being a reliable firm, avoiding late completion of jobs.
3. Types of Production Systems
Production systems are broadly classified into three categories:
- Job shop production
- Batch production
- Mass production
1. Job shop production
In this system products are made to satisfy a specific order. However, that order may be produced only once or at irregular time intervals. Small batches of a variety of custom products are made in this type of system. These businesses deal in customization and relatively small production runs, not volume and standardization. A commercial printing shop is an example of job shop.
The following are the important characteristics of job shop type production system:
- Machines and methods employed should be general purpose as product changes are quite frequent. Machines are grouped on functional basis.
- Operators should be skilled enough to deal with changing work conditions.
- Product cost is normally high because of high material and labour costs.
This system needs to be very flexible because of the high variety of products that will be manufactured. Production planning can result more difficult due to the frequent changes in product requirements.
2. Batch production
Batch production is the manufacture of a number of identical articles. In this approach, instead of manufacturing items individually or continuously, manufacturing moves in groups or batches. Each of the steps in the production process is applied at the same time to an entire batch of items, and that batch does not move onto the next stage of the production process until the whole batch is done. An example of batch production is the way cookies are elaborated in a local bakery.
Batch can be manufactured either only once or repeatedly at irregular time intervals as and when demand arises or repeatedly at regular time intervals to satisfy a continuous demand.
The following are the important characteristics of batch production:
- As the final product is somewhat standard and manufactured in batches, costs are lower than in a job shop production. Inventory management is also simpler.
- Machines are grouped on functional basis similar to the job shop manufacturing.
- Semi automatic, special purpose automatic machines are generally used to take advantage of the similarity among the products.
- In order to produce a variety of different product variations labour should be skilled enough.
Normally production planning and control is difficult due to the odd size and non-repetitive nature of order.
3. Mass production
In mass production, the same type of product is manufactured to meet the continuous demand of the product. Usually demand of the product is very high and market is going to sustain same demand for sufficiently long time.
The following are the important characteristics of mass production:
- Cost of production is low due to the high rate of production. Production scheduling facilitates inventory.
- As the same product is manufactured for sufficiently long time, machines can be laid down in order of processing sequence.
- Most of the equipment is semi automatic or automatic in nature. Material handling is also automatic (such as conveyors).
- Semi skilled workers are normally employed, as most of the facilities are automatic.
As the product flows along a pre-defined line, planning and control of the system is much easier.
4. Inventory systems: JIT vs. traditional inventory
A traditional inventory system keeps a large on-hand inventory. Goods are bought in large amount from suppliers and stored at warehouses. With this system large inventories are kept in case higher demand had to be met and also to avoid delay in production in case of shortages or shipping delays.
However this system could be considered a form of waste.
During the late 1980s many notable Japanese manufacturing firms changed the way they manage inventory focusing on having precisely the right amount of components or materials on hand at any given moment, with as little idle inventory as possible. This model is called just-in-time (JIT) inventory system and American and European companies also adopted it in the years following.
In a factory run perfectly according to the JIT model, every component delivered to the factory would go directly from the loading dock to the assembly line.
Costs reduction and productivity increase. The warehousing space and work-hours are reduced. Materials are also handled only once from the loading dock to the assembly line.
In addition, manufacturers can move from one type of product to another very easily without wasting stocked materials.
Unexpected shortages or shipping delays can stop production.
Materials are bought when needed so companies cannot buy them at a particular moment when prices are low.
A famous example of company using JIT inventory: Toyota.
Toyota sends off orders for parts only when it receives new orders from customers. Although the company started using this system in the 1970s it took more than 15 years to perfect.
The factors that allow the success of this system in Toyota are the following: steady production, high-quality workmanship, no machine breakdowns at the plant, reliable suppliers and quick ways to assemble machines that put together vehicles.
In 1997 a fire at a brake parts plant owned by Aisin decimated its capacity to produce a particular type of valve for Toyota vehicles. This company was the sole supplier for this part and in one day Toyota ran out of theses valves. Production lines shut down for just two days until a supplier of Aisin was able to start manufacturing the necessary valves. The fire cost Toyota nearly $15 billion in revenue and 70,000 cars due to its two-day shutdown, but it could have been much worse.
5. How much to produce?
All businesses, regardless of size or complexity, try to earn a profit. In the Production Plan we need to take into account the number of units of our product that we need to manufacture to start making a profit.
The operations to obtain this amount are made in the financial plan.
Profit = Total revenue − Total cost
Total revenue is the income brought into a firm from selling its products. It is calculated by multiplying the price of the product times the quantity of output sold.
The calculation for the total cost is not so simple.
We can distinguish between two types of cost: explicit and implicit. Explicit costs are out-of-pocket costs—payments that are actually made. Wages that a firm pays its employees or rent that a firm pays for its office are explicit costs.
Implicit costs are more subtle but just as important. They represent the opportunity cost of using resources already owned by the firm. Often for small businesses, they are resources contributed by the owners—for example, working in the business while not getting a formal salary or using the ground floor of a home as a retail store. Implicit costs also allow for depreciation of goods, materials, and equipment that are necessary for a company to operate.
These two definitions of cost are important for distinguishing between two conceptions of profit—accounting profit and economic profit. Accounting profit is a cash concept. It means total revenue minus explicit costs—the difference between dollars brought in and dollars paid out. Economic profit is total revenue minus total cost, which includes both explicit and implicit costs.
The difference is important. Even though a business pays income taxes based on its accounting profit, whether or not it is economically successful depends on its economic profit.
When calculating the explicit costs we need to distinguish between:
- Fixed cost, like the rent of a space, a cost that will not change when the number of units produced increases.
- Variable costs that will be given by the amount of units produced. For example, when running a restaurant the food is a variable cost.
The increasing in the variable costs doesn´t need to be proportional to the increasing in units produced. Maybe when buying a large amount from a supplier I can get a better price.
You can watch a video with a worked example using the following link: Marginal cost and average total cost.
6. Manufacturing and environment
Have you ever thought about the environmental impact of manufacturing? Has this impact changed in the last centuries?
In the 18th century the first generations of factories utilized windmills, water mills and wood for energy. This produced a small amount of energy that couldn’t be stored or transported very well. The true Industrial Revolution started when early fossil fuel technology was developed and implemented. But as factories became larger and more efficient the output increased, and so did the environmental damage.
Nowadays, we live in a society where the consumption of material goods has increased to a level that has a very significant impact on the environment.
What do you think of the following idea?
“The rate at which we consume goods and the demand we place on cheap and easily accessible materials are both unsustainable and have led to the development of a fossil fuel-dependent economy”. (learn more)
Finding environmental friendly solutions
When facing a problem with two solutions in which one is cheaper and the other one produced a minor environmental damage, what do you think is the chosen solution for governments or entrepreneurs? Do we put enough effort to find environmental friendly solution when dealing with production problems in our companies?
“The City of New York had the choice some years ago: pay farmers to grow trees and farm using fewer chemicals, or build a wastewater treatment plant. In the end, paying the farmers cost them 10% of what the treatment plant would have.” (learn more)
In order to maximize profit a lot of businesses move their operations to developing countries. What are the main consequences for the environment of this outsourcing?
We usually think about the impact of shipping. But we also need to keep in mind that this movement sometimes responds to different lax labour and environmental regulations.
Developing countries have different environmental regulations, so corporations moved there to recreate a situation that wouldn’t be allowed in their countries. For example, they could dump chemicals without regards for how it would affect local ecosystems or human health.
7. The future of our production system
In the next article you will read about five different aspects that will play an important role in the next manufacturing revolution.
Author: François Barbier is President of Global Operations and Components at Flex.
1. Augmented Reality. Seeing Around Corners – In 360°
New tools are allowing companies to create and test situations in the virtual world, to simulate the design process and the assembly line before an actual product is created. Simulating the product-creation phase helps cut down on manufacturing time and ensure the manufacturing process delivers what companies intended to create. At Flex, we are also using augmented reality solutions for remote assistance, allowing people in different locations around the world to connect in a live view and trouble-shoot together. This allows an engineer in China to consult with an engineer in the U.S. on a technical issue and receive feedback in real time through wearable Augmented Reality (AR) glasses, expediting problem solving and significantly reducing travel costs.
2. Viewing The Fourth Wave – In 3D
Also making a mark in the manufacturing world is 3-D printing, which allows for the seamless creation of tangible products using a single machine. This is a fundamental change, because it gives you a lot more possibilities for how you design a part. For a certain category of product where you would normally need six pieces, 3-D printing can achieve the same thing in one piece without additional processes like welding or screwing.
Three-dimensional printing reduces waste by recycling plastic and cuts down on the wait time for replacement parts and transportation. Its implications for mass production are various, making advancements possible in products ranging from toys to medical devices.
3. Automation: Advanced Manufacturing – On Autopilot
Automation is another vital aspect of the industry’s future. Approximately 50% of Flex’s manufacturing processes are already fully automated. Automation enables a level of accuracy and productivity beyond human ability—even in environments that would be considered unsafe for humans. The new generation of robotics is not only much easier to program, but easier to use, with capabilities like voice and image recognition to re-create complex human tasks. Another advantage of robots is that they do precisely what you ask them to do – nothing more, nothing less. And while automation eliminates some of the most tedious manufacturing jobs, it is also creating new jobs for a re-trained workforce, discussed below.
4. Building Intelligent Factories – In The Cloud
In addition to robotics and virtual reality, factories environments are also driving advancements in cloud computing and smart sensors. Smart sensors can perform tasks such as converting data into different units of measurement, communicating with other machines, recording statistics and feedback and shutting off devices if a safety or performance issue arises. IoT functionality can track and analyze production quotas, consolidate control rooms and create models of predictive maintenance.
IoT allows us to get the right information at the right time to make the right decisions, like a speedometer that shows how fast you’re driving in the moment versus your speed from yesterday. Cloud computing enables companies to extract and analyze information that affects the production line. Data from augmented and virtual reality, as well as increased customer feedback, will have a significant impact on research and development, giving consumers more of what they want, getting it to them faster and cutting down on costs—a system that ultimately will drive innovation.
5. Robots On The Rise – Managed By Humans
Building a better manufacturing sector with augmented and virtual reality, robotics and data analysis using smart equipment naturally raises an important question: What will the Industry 4.0 workforce look like? While there are still some significant challenges ahead, the outlook is strong despite the obvious concern of robots displacing jobs. The bulk of automation is used for work that would be considered unsafe or impossible for humans. This makes robots a complement to, not a replacement for, human workers. Because of robots, we’ll be able to increase our output.
We will still need people who can manage new operations, manage the robotics, program them and maintain them. Just as there was a shift from farm work to factory work in the early 20th century, almost every sector will need new kinds of workers: those who can build hardware, software and firmware; those who can design automation and robotics; and those who can adapt and maintain new equipment. Close to 15 million new jobs will be created in the U.S. over the next decade as a direct result of automation and artificial intelligence, equivalent to 10% of the workforce, according to estimates from Forrester Research – although technology will cause job losses too.
Increased efficiency could spell a bright future for American manufacturing. A shift to smart manufacturing will save our corporations money and translate into greater profits, more jobs and healthier economies. As our machines move into a more complex age, so do our workers and products, symbiotically ushering in a new era of production.