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Production in Supply Chain Management

Production is the act of manufacturing goods. It is process and methods employed in

transformation of tangible inputs (raw materials, semi finished goods) and intangible input
ideas, information into goods or services.
Production is the key area in supply chain as it directly influences the capacity of the supply
chain to meet customer demand. To understand the role of production in the supply chain, it
is useful to classify it into following:
1. Intra firm
2. Inter firm
3. Supply chain production.
In the early part of the 20th century, the focus was on the quality and the production method
that focused on quality was craft production. In the 1930s and 1940s cost was the overriding
factor and mass production was the dominant production paradigm. In the 1980s quality
combined with low cost was the critical factor and lean production emphasizing supplier
partnerships was the dominant production paradigm. In the 1990s and beyond, the critical
factor seems to be flexibility and the dominant production paradigm is likely to be supply
chain production.

Intra firm Production:

Intra firm production refers to the production process within a firm or single structure, i.e.,
where the entire product is manufactured within a firm. Common forms of intra firm
production are as follows:

Craft production
Mass production
Lean production
Just in time (JIT) production.

Craft Production:
Craft production is the process of manufacturing by hand with or without the aid
The term Craft production refers to a manufacturing technique applied in the
of Handicraft but was also the common method of manufacture in
industrialized world. For example, the production of pottery uses methods

of tools.
the preof craft

A side effect of the craft manufacturing process is that the final product is unique. While the
product may be of extremely high quality, the uniqueness can be detrimental as seen in the
case of early automobiles.
Womack, Jones and Roos in the book The Machine That Changed the World detailed that
early automobiles were craft produced. Because each vehicle was unique, replacement
parts had to be manufactured from scratch or at least customized to fit a specific vehicle.
The advent of Mass production and the standardization of replacement parts guaranteed a
parts' compatibility with a variety of vehicle models.

Mass Production:
During the golden era of 1900 where Craft Production was hinted to losing its larger picture
in many ways. A young entrepreneur named Henry Ford was trying to design an automobile
that was easy to manufacture and easy to repair. Ford finally achieved his goal with his
1908 Ford Model T. It was initially Fred Winslow Taylor who laid the foundation for mass
production through Scientific Management. Alfred Sloans managerial innovations and the
role of organized labor in controlling work tasks and job assignments completed the system.
Mass production (also called flow production, repetitive flow production, or series
production) is the production of large amounts of standardized products on production line.
The primary cause is a reduction of nonproductive effort of all types. In mass production,
each worker repeats one or a few related tasks that use the same tool to perform identical
or near-identical operations on a stream of products unlike craft production. Moreover, the
worker spends little or no time retrieving and/or preparing materials and tools, and so the
time taken to manufacture a product using mass production is shorter than when using
traditional methods.
The probability of human error and variation is also reduced, as tasks are predominantly
carried out by machinery. A reduction in labor costs, as well as an increased rate of
production, enables a company to produce a larger quantity of one product at a lower cost
than using traditional, non-linear methods. Also, Management plays a respective role in
mass production work.

Lean Production:
Many of the concepts in Lean Manufacturing originate from the Toyota Production System
(TPS) and have been implemented gradually throughout Toyotas operations beginning in

the 1950's. By the 1980s Toyota had increasingly become known for the effectiveness with
which it had implemented Just-In-Time (JIT) manufacturing systems Today, Toyota is often
considered one of the most efficient .manufacturing companies in the world and the
company that sets the standard for best practices in Lean Manufacturing. The term Lean
Manufacturing or Lean Production first appeared in the 1990.The book The Machine that
Changed the World
Lean Manufacturing has increasingly been applied by leading manufacturing
companies throughout the world, lead by the major automobile manufactures
and their
equipment suppliers. Lean Manufacturing is becoming an increasingly important topic for
manufacturing companies in developed countries as they try to find ways to compete more
effectively against competition from Asia.
Lean Manufacturing, also called Lean Production, is a set of tools and methodologies that
aims for the continuous elimination of all waste in the production process. The main benefits
of this are lower production costs; increased output and shorter production lead times

Steps in lean production:

Organizations can profit from learning to think in terms of Lean, a philosophy that aims to
eliminate waste (in Japan, where Lean was developed, the term is muda). Lean attacks
waste mainly by shortening the time between the customer order and shipment. Based on a
customer-focused view, six steps can provide a strong foundation for any organization that
wants to incorporate Lean into its operating philosophy. These steps in Lean thinking can be
best evaluated at the producer end by verifying and reviewing each step one at a time.


Value stream
Lean thinking can best start by giving due consideration to value, which ultimately is the
customers requirement. The value of any product (goods or services) is defined by
customer needs and not by any non-value-added activity at the supplier or producer end.
That is, the customer is prepared to pay for operations by producers or their suppliers that

transform the product in a way that is meaningful to the customer. Customers do not want to
pay for waste at the producer end.

1. Value (Specifying)
Value is determined by the customers who want to buy the right product with the right
capabilities at the right price. That is, the product must be right every time from design to
manufacture, from delivery to error-free operation. Lean companies work on making their
processes right by eliminating waste something no customer wants to pay for.
While linking the term value generally with customer requirements, the following questions
can be asked to review the value for the customer as it relates to any specific product issue:

What is the problem that impacts the customer?

What is the problem that the team is going to take action on?
Why is the project so important that the organization should address it?
Why is the project being done?

2. Value Stream Mapping (Identifying)

Once value is specified by the customers, the next Lean step is to identify the right
process a process that only adds value to the product, in other words, a waste-free
process. The value stream for a product has three categories of activities:
1. Process steps that definitely create value: In any manufacturing process, the
steps that are actually transforming the fit, form or function of the raw material, and
bring it a step closer to the finished product.

2. Process steps that create no value but are necessary, due to current state of
the system: In any manufacturing process, activities like inspection, waiting and
some transportation steps.

3. Process steps that create no value and can be eliminated: Any activity that does
not fall into the above two categories.

While the parts of a process that create no value should be eliminated, any action or activity
that is recognized as non-value-added but currently necessary should be targeted for
improvement. At this point a detailed process flow diagram should be generated for each
product or product category.

To ascertain which steps in the process are unnecessary, an intense questioning and reexamining method (Japanese term is kaikeku) is applied to every aspect of the process
under consideration.

The review points at this stage are:

Does the team understand how the whole process works?

Did the team manage to complete a detailed process flow diagram at this stage?
Did the team identify the waste in the process?
Did the team follow kaikeku the radical improvement approach?

3. Flow
This Lean step focuses on rapid product flow (RPF). The specific process waste is identified
at each stage of process flow and is eliminated. The team involved in Lean will physically
walk the process and write down the distance the product travels during its process flow.
The non-value-added distances are eliminated by physical layout change, which involves
both human and machine. Factory floors are laid out in cells rather than in functional
groupings, which reduces the distance the parts travel in the process flow.
It is at this point that the Lean enterprise implements 5S, a tool developed for reducing the
slack hidden in manufacturing processes. 5S is the basis for Lean manufacturing and the
foundation for a disciplined approach to the clean workplace. The five steps of 5S are (in
Japanese and English):


Sort: Meaning sorting or segregating through the contents of the workplace and
removing all unnecessary items.


Straighten: Meaning putting or arranging the necessary items in their place and
providing easy access by clear identification.


Shine: Meaning cleaning everything, keeping it clean and using cleaning to inspect
the workplace and equipment for defects.


Standardize: Meaning creating visual controls and guidelines for keeping the
workplace organized, orderly and clean, in other words, maintaining the seiso, or shine.


Sustain: Meaning instituting training and discipline to ensure that everyone follows
the 5S standards.

Questions to be asked at this point are:

How is the impact of customer demand on the process being translated or
Did the team physically visit the process to realize the process steps?
Did the team identify the non-value-added distances traveled by parts?

4. Pull

The benefits of Lean Steps 1, 2 and 3 allow a company to produce more than before and in
a way that value is added at every step in the production process. The fourth Lean step can
be directed toward either removing excess capacity (inventory) or increasing the rate of pull.
Lean, which identifies the seven deadly wastes as defects, over-production, transportations,
waiting, inventory, motion and processing (or the acronym, DOTWIMP), lists inventory as a
source of waste. Hence, producing anything that is not sold immediately and is waiting at
any point of time for delivery is waste. A pull system, which on the production side is making
a product at the same rate at which it is being sold, also is a waste-eliminating step. On the
supply side, a pull system is flowing resources into a production process by replacing only
what has been consumed.
The review points here are:

Did the Lean team define the sequence of operation?

Did the team manage to achieve the balance of operation times?
What can be put in place to support the customer supply needs?
How will this be managed through the business?
How will the internal inventory needs be managed?

5. Perfection

This Lean step emphasizes that continuous improvement has to be a part of the
organization and is always possible. This is the desired state of any change in any
environment. The organization should always try to achieve what is the perfect system for
that kind of operation and should aim at continuously improving the present system. The
word for this in Japanese is Kaizen.

Questions to be asked here are:

Have all stakeholders acknowledged and accepted that the process has been
What process will be put in place to further improve the process?
What risk is there that these causes will come back and disturb the process again?
Did the team document the project in a form that anyone can understand?
Has the team identified the next stage of continuous improvement?

Just In Time Production:

Just-in-time manufacturing was a concept introduced to the United States by the Ford
motor company. It works on a demand-pull basis, contrary to hitherto used techniques,
which worked on a production-push basis.
To elaborate further, under just-in-time manufacturing (colloquially referred to as JIT
production systems), actual orders dictate what should be manufactured, so that the exact
quantity is produced at the exact time that is required.
Just-in-time manufacturing goes hand in hand with concepts such as Kanban, continuous
improvement and total quality management (TQM).

Just-in-time production requires intricate planning in terms of procurement policies and the
manufacturing process if its implementation is to be a success.
Highly advanced technological support systems provide the necessary back-up that Justin-time manufacturing demands with production scheduling software and electronic data
interchange being the most sought after.

Advantages Just-In-Time Systems

Following are the advantages of Adopting Just-In-Time Manufacturing Systems
Just-in-time manufacturing keeps stock holding costs to a bare minimum. The
release of storage space results in better utilization of space and thereby bears a
favorable impact on the rent paid and on any insurance premiums that would
otherwise need to be made.
Just-in-time manufacturing eliminates waste, as out-of-date or expired products; do
not enter into this equation at all.
As under this technique, only essential stocks are obtained, less working capital is
required to finance procurement. Here, a minimum re-order level is set, and only
once that mark is reached, fresh stocks are ordered making this a boon to inventory
management too.
Due to the aforementioned low level of stocks held, the organizations return on
investment (referred to as ROI, in management parlance) would generally be high.
As just-in-time production works on a demand-pull basis, all goods made would be
sold, and thus it incorporates changes in demand with surprising ease. This makes it
especially appealing today, where the market demand is volatile and somewhat

Following are the disadvantages of Adopting Just-In-Time Manufacturing Systems
Just-in-time manufacturing provides zero tolerance for mistakes, as it makes reworking very difficult in practice, as inventory is kept to a bare minimum.
There is a high reliance on suppliers, whose performance is generally outside the
purview of the manufacturer.

Due to there being no buffers for delays, production downtime and line idling can
occur which would bear a detrimental effect on finances and on the equilibrium of
the production process.

Following are the things to Remember When Implementing a Just-In-Time Manufacturing
Management buy-in and support at all levels of the organization are required; if a
just-in-time manufacturing system is to be successfully adopted.
Adequate resources should be allocated, so as to obtain technologically advanced
software that is generally required if a just-in-time system is to be a success.
Building a close, trusting relationship with reputed and time-tested suppliers will
minimize unexpected delays in the receipt of inventory.
Quality enhancement programs should be adopted, so that total quality control
practices can be adopted.
Reduction in lead times and frequent deliveries should be incorporated.
Motion waste should be minimized, so the incorporation of conveyor belts might prove to be
a good idea when implementing a just-in-time manufacturing system

Inter firm Production:

As companies expand in size, they have the choice to either vertically integrate and own
every step of the process or to rely on other firms to become suppliers. As companies start
to consider production processes outside the firm, the importance of suppliers in the
production processes increases. Inter firm production consist following production systems:
1. Quick Response Manufacturing (QRM)
2. JIT Inter firm Production
3. Tiered Production

Quick Response Manufacturing (QRM)

Quick response manufacturing is the latest development in lean manufacturing where
companies have progressed from the just-in-time (JIT) methodologies of the 1970s. The
QRM process looks at how lead times across the company can be reduced to increase
productivity. Customer satisfaction is an important driver for businesses and the ability to
respond quickly to customers requirements is a leading factor behind QRM. Customers
expect their vendors to respond to their requirements, so by adopting QRM processes
companies may have an advantage in winning business.
When a company implements QRM, the process of reducing lead times should be adopted
throughout the organization. The company should also include analysis techniques and
tools, and a step-by-step methodology to achieve the required reduction in lead times.
QRM is often implemented by two types of businesses. The first type is a company that
produces highly engineered material in small batches. The other type of company to
implement QRM is one that does not need to engineer each item, but has a very large
number of different items with highly variable demand for each.
Implementing QRM requires that the whole organization understands and it part of the
process. In addition both management and employees should understand the
manufacturing systems that in place at the company, especially those that affect lead times.
However, lead times are not always determined by manufacturing processes. The purchase
of raw materials, a back office function, will trigger a lead time and part of the QRM policy
will include reducing lead times of non-manufacturing processes. The QRM will therefore
cover all areas such as purchasing, shipping, finance and human resources.
When a company has implemented QRM it should be able to realize a reduction in lead
times of up to 95 percent, a reduction in finished product cost of 30 percent, an
improvement in on-time delivery performance in excess of 60 percent, and reduction in
scrap and rework of up to 80 percent or more.

Benefits of QRM:
1. It decreases the manufacturing costs
2. It increases the market share


It fills customer order faster

It boosts product quality
It introduces new products rapidly
It eliminates waste and inefficiency
It secures the manufacturing future of the firm

JIT Inter firm Production:

In this firms maintain a long term relationship with the suppliers and even partner with them.
In this production system, manufacturers and suppliers jointly decide upon cost reduction
techniques. The manufacturer shares the profits that accrue in the cost reduction activities
with the supplier.
By maintaining long term relationship with the suppliers firms can mitigate variability in
supply. Because of the extended commitment suppliers can provide material required by the
firm in a timely manner, which will reduce the need to hold buffer stocks.
Thus inter firm partnership creates a win win situation for both manufacturers and
suppliers where the manufacturer assures the supplier of sufficient orders and the supplier
gives the firm a long term commitment for supply of quality material.

Tiered Production:
Another form of production which enables the firm to deal with suppliers effectively is tiered
production. In this a manufacturer deals with a limited number of suppliers. In this type of
production, the firm deals only with the first tier suppliers. The firm entrusts the responsibility
of design and production of a key part or component to this supplier. In turn, the first tier
suppliers deal with the second tier suppliers to carry out some of the work.

Supply Chain Production

The competitive advantage of a firm is assessed in terms of its flexibility to shift from low
cost production strategies to faster product development in a short period of time and with
lesser resources.
A firm with a supply chain orientation not only considers the immediate supplier and
customer but also the other levels of suppliers and customers. Some of the supply chain
production methods widely used in industry is described below:

1. Dispersed Production
2. Build to order Production
3. Postponement

Dispersed Production:
It involves production of a component at a location which is well suited for that particular job.
The main function of the firm in such a manufacturing environment is to determine the
overall production plan and allocate the tasks among the dispersed manufacturing partners.
According to Ferdows there are three key factors responsible for the growing popularity of
dispersed production which as follows:
1. Emergence of Modern Factories
2. Reduction of Trade Barriers
3. Emergence of Specialized Production firms

Build to order production:

It is also known as Demand driven Manufacturing is a relatively new concept that very few
companies have been able to achieve because it requires a well coordinated supply chain.
By integrating within a single system such functions as transportation, production, and
planning a supply chain becomes truly demand driven and build to stock is been replaced
build to order

It benefits greatly from a supply chain orientation is postponement. It is the concept of
designing a product such that it is possible to delay differentiation of the product until
customer demand for the specific end product is known.