[MUSIC] Welcome back to our lecture on manufacturing and service operations.
Upon completion of this lesson, learners should be able to discuss the role of manufacturing and service operations in the supply chain and the differences between manufacturing and service operations. And describe the high-level operations strategies that exist to align industry-specific sales models to production processes.
Having discussed planning and sourcing functions, we now turn our attention to the key transformational component of the supply chain, manufacturing and service operations. Operations management is a key component of almost every company, regardless of the industry, size, or ownership structure. Companies generally have to provide a product and/or service by adding value or there is little reason for them to exist. This is where manufacturing and service operations comes in to produce a company’s goods and services. Manufacturing operations produce, tangible goods and products, where tangible products are physical products that can be seen, held, transported and deliver to customers. Everything from toothbrushes to automobiles is a tangible good.
Manufacturing includes the work that needs to be done to convert inputs which maybe raw materials or components into products demanded by customers.
It’s important to recognized that customers maybe external customers of finished products, external parties buying components or sub-assemblies, which they then transform into finished products. Or even internal departments, where one department makes a first stage product, say liner board for a corrugated box, which is then sold internally to the box division of a company. Which transforms the liner board, glue, and ink into a finished box for sale to an external customer.
Service operations, on the other hand, provide intangible services that are not as easy to identify as manufactured tangible products. Examples of service operations are banking, consulting, product repair, hospitality, and insurance.
The manufacturing function works with warehousing, planning, and procurement functions among others to ensure that the needed,
raw materials are stored, sourced, procured, etc, along with work in process and finished goods that move throughout the supply chain. A major focus of manufacturing is the optimizing of manufacturing processes as well as ensuring final product quality. So, what does it take to transform raw materials into finish products? Let’s take a look at a high-level operational process model. The resources required to perform manufacturing and service operations include employees, equipment, facilities, materials, utilities, such as electricity, water, and communications, information, and financial support.
An example to contrast manufacturing and service operations can be viewed from the automotive industry. While Ford and GM have substantial manufacturing operations to transform sheet metal, glass, tires, interiors, etc, into finished automobiles. Those same companies provide retail outlets that offer aftermarket services that keep autos operational by providing a broad array of repair services and replacement parts. While there are distinct differences between manufacturing and service operations, they’re are also similarities between the two.
Both type of operations require a process to quantify customer demand, a strategy to stay competitive, and a continuous process for controlling costs. The manner in which a company makes goods must be in alignment with how a company markets those goods. That is the promise to the customer has to have an effective way of coming true. Let’s take a look at several different operating strategies that can be used to help align marketing and making.
It should be noted that industry-specific expectations and requirements are key drivers of model selection. First, let’s look at engineer-to-order, ETO.
It involves highly customized and expensive products
that require long lead times to design and complete manufacturing process. Usually customer orders are required before any work begins. Once orders are received, design and manufacturing begin. Some examples of ETO products include custom built homes, individually designed yachts, and highly customized vehicles.
Make-to-order, or MTO, is a model that is geared towards efficiently meeting the needs of a larger group of customers, while allowing for some customization. Typically, orders are required before beginning the production process. However, unlike ETO, most of the design work is complete and parts may be in inventory. This advanced preparation reduces the amount of time and expense required to process the order.
One example of make to order is purchasing a builder spec home in which the core elements of the home have been selected. However, the finishing touches such as carpeting, paint color, appliances, etc, are left for customization consideration by the final customer. Assemble-to-order (ATO), this model includes products that are assembled from standardized parts and modules, easily accessible, with a flexibility arising from how the parts are finally assembled. Usually several options are available to allow buyers to customize the assembled products.
An example my be when paint stores mix paints from a single base color, say a base white color, to produce hundreds of customized colors by adding different tints. Make-to-stock, MTS, in this model companies mass produce goods to keep them in inventory so that when customers order products are ready to ship.
Companies use demand forecasts to estimate production requirements. Products that are in the mature stage are usually the best ones for this type of process, because demand can be estimated with a fair amount of confidence.
Manufacturing and service operations are not always separate. They can be used together to provide the end users with products and services combined. For example, a heat pump company utilizes an operation’s management organization to assemble heat pumps for residential and commercial applications. The same company employs a service management organization to train and deploy personnel to install and service the heat pumps.
The difference between manufacturing and service operations is the output of manufacturing operations is a tangible item that can be placed in inventory. By contrast, the output of service operations is not tangible, and cannot be placed in inventory. For example, cars produced in a factory by manufacturing operations required dedicated operations management organizations to produce cars.
Service operations in the automotive
industry would include automotive technicians, repair personnel, and repair parts to service the autos after they are sold. The service operations provide extremely valuable services, but their output cannot be placed in inventory.
Let’s look at some service delivery models. First a service factory. This sector typically involves low labor costs, low customization, and low costumer interaction. Some examples include hotels, trucking companies and airlines. A key customer trade in this area is price shopping. Customers look for the best deal, based primarily on the price of the service. Operations managers will focus their efforts on facilities and equipment utilization by maximizing output and keeping costs low.
A service shop is a sector in which a high level of customization and customer interaction is required, but there’s still relatively low labor costs involved, such as with automobile repair shops. Two of the biggest issues for operations management in this sector include staying current with technology updates and scheduling of resources.
Mass service, this sector requires lower customization and customer interaction, but labor costs are relatively high as in retail banks. Operations managers are usually concerned with improving service times, and strive to employ automated technologies, where possible, for elements of the process that don’t require human interaction.
Professional services, this sector is characterized by high customization and customer interaction and high labor costs as with those you would see with accountants, consultants, doctors, and lawyers. These types of service providers are highly educated and the services they perform are time consuming and deeply customized.
In this lesson, we’ve discussed the role of manufacturing and service operations in the supply chain and the differences between manufacturing and service operations. And we’ve discussed the high-level operations strategies that exist to align industry-specific sales models to production processes. Thank you for joining us and we’ll see you on the next lesson. [MUSIC]
[MUSIC] Welcome back to our lecture on manufacturing and service operations.