Logistics Process Design

Week 7
 What is ‘design’?
‘the process by which some functional
requirement of people is satisfied through the
shaping or configuration of the resources and/
or activities that comprise a product, or service,
or the transformation process that produces
them.’ Slack et al (2006)

All operations managers are designers

Design and Manufacturing

Design of Design of
the Product the Process

In manufacturing operations
overlapping the activities of
product and process design is
beneficial
Design and Customers
The purpose of design is to satisfy
customers
Product designers will seek to create things that:
- are aesthetically pleasing;
- satisfy needs;
- meet expectations;
- perform well;
- are reliable;
- are easy to manufacture and deliver.

Operations managers tend to focus

on the design of the transformation
process
Remember this …?

TRANSFORMATION
INPUT OUTPUT
PROCESS
Design is also a
Finished designs
transformation process which are:

TRANSFORMED High quality: Error-free designs

RESOURCES which fulfil their purpose in an
Technical information effective and creative way
Market information
Time information Speedily produced: Designs
which have moved from
concept to detailed
THE DESIGN specification in a short time
INPUTS OUTPUT
ACTIVITY Dependably delivered: Designs
which are delivered when
promised
Test and design
equipment Produced flexibly: Designs
Design and technical staff which include the latest ideas
to emerge during the process

TRANSFORMING Low cost: Designs produced

RESOURCES without consuming excessive
resources
 Broad categories of evaluation criteria for assessing
design options

THE CRITERIA FOR ASSESSING PROPOSED

DESIGN OPTIONS

FEASIBILITY ACCEPTABILITY VULNERABILITY

How difficult is How worthwhile is What could go
it? it? wrong?

What INVESTMENT both What RETURN What RISKS

managerial and financial in terms of financial and do we run if things go
will be needed? performance improvement wrong?
will it give?
 Process Design

A process is…

‘any part of the organisation which takes a set

of input resources which are then used to
transform something, or are transformed themselves
into outputs of products or services which
satisfy customers.’

‘a group of resources and activities which add value

by turning specific inputs into outputs.’
Slack et al, (2006)
 Process Mapping
• Describing processes in terms of how the activities within the process
relate to each other
• High level, detailed, current state, future state process mapping
 Common Process Mapping Symbols
Operation (an activity that Beginning or end of process
directly adds value)

Inspection (a check of some Activity

sort)
Transport (a movement of Input or Output from the process
some thing)

Delay (a wait, e.g. for materials) Direction of flow

Storage (deliberate storage, as Decision (exercising discretion)

opposed to a delay)

Process mapping symbols derived Process mapping symbols derived from

from “Scientific Management” Systems Analysis
 Making Sandwiches
Raw
Assembly Stored Sandwiches Move to Stored Sandwiches Sell
Take Payment
Materials Outlets

Standard sandwich process

Customer Request

Raw Assembly Take Payment

Materials

Customer Request

Customized sandwich old process

Process Types
• Project processes
• Jobbing processes
• Batch processes
• Mass processes
• Continuous processes
Volume Variety
Jobbing Processes
• Very small quantities: “one-offs”, or only a few required
• Specially made. High variety, low repetition. “Strangers”
• Skill requirements are usually very broad
• Skilled jobber, or team of jobbers complete whole product
• Fixed position or process layout (routing decided by
jobbers)

Furniture restorers
 Batch Processes
• Higher volumes and lower variety than for jobbing
• Standard products, repeating demand. But can make
specials
• Batches could be small
• Specialised, narrower skills
• Set-ups (changeovers) at each stage of production

Production of most clothing

Mass (Line) Processes
• Higher volumes than Batch
• Standard, repeat products (“runners”)
• Low and/or narrow skills
• No set-ups, or almost instantaneous ones
• A fixed sequence of operations

Bottling beer
Continuous Process
• Extremely high volumes and low variety: often single
product
• Standard, repeat products (“runners”)
• Highly capital-intensive and automated
• Few changeovers required
• Difficult and expensive to start and stop the process
• Product layout: usually flow along conveyors or pipes

Petrochemical refinery
 Process Types
Manufacturing process Service process types
types
High

High
Project
Professional
service
Jobbing

Service shop

Variety
Variety

Batch

Mass

Contin- Mass service

Low
Low

-uous

Low Volume High Low Volume High

 Product-Process Matrix
INCREASING VARIETY
INCREASING VOLUME
Manufacturing
PRODUCT CHARACTERISTICS
Low volume Low volume Higher volume High volume
Low Multiple products Few major High
standardization products standardization

Random
flow
(project) Custom
furniture
PROCESS CHARACTERISTICS

Jumbled
flow maker Machine
(jobbing)
tool maker
Disconnected
line flow
(batch)
Automobile
Connected
line flow
factory
(mass) Petro-
Smooth flow
chemical
(Continuous) refinery
 Product-Process Matrix
INCREASING VARIETY
Services INCREASING VOLUME

PRODUCT CHARACTERISTICS
Low volume Low volume Higher volume High volume
Low Multiple products Few major High
standardization products standardization

Random
flow
(project) Investment
PROCESS CHARACTERISTICS

Jumbled banking
flow Customer
(jobbing)
service
Disconnected branch
line flow
(batch)
Bank call
Connected centre
line flow
(mass)
Credit card
Smooth flow processing
(Continuous)
Process Design
PROCESS DESIGN
• Once the operation has decided upon its location, it has to decide
how to lay out its facilities.
• Layout can be classified into different types, which relate to the type
of process being used.
• A mismatch between the two may lead to inefficiency
Basic Layout Types

Manufacturing Basic layout Service

process types types process types
Project processes
Project processes Fixed Professional
position layout services

Jobbing processes
Process layout
Service shops
Batch processes
Cell layout

Mass processes Mass services

Product layout
Continuous processes

© Nigel Slack, Stuart Chambers & Robert Johnston, 2004 Operations Management, 4E: Chapter 7
What makes a good layout?
• Maximum • Minimum
• Flexibility • Length of flow
• Safety • Handling
• Discomfort
• Visibility/Clarity
• Accessibility
• Use of space
• Comfort
• Long-term flexibility
 Advantages and disadvantages of layout types

Fixed Process Cell Product

position layout layout layout
layout
Very high product High product and Can give good
and mix flexibility. mix flexibility. compromise. Low unit costs for
high volume.
Product/customer Relatively robust Fast throughput.
Advantages not moved. in the case of Opportunities for
disruptions. Group work can specialization of
High variety of result in good equipment.
tasks for staff. Easy to supervise. motivation.

Can have low mix

Very high unit Low utilization. Can be costly to flexibility.
costs. rearrange existing
Can have very layout. Not very robust to
Disadvantages Scheduling space high WIP. disruption.
and activities can Can need more
be difficult. Complex flow. plant. Work can be very
repetitive.
The Manufacturing Environment
• Rapid Changes
• New products rapidly introduced
• Short, unknown product life cycles
• High Variety of Products
• Long Production Lead Times
• Increasing storage and transportation costs
• Difficult to forecast demand
The Goals of the
Manufacturing Organization

• Responsiveness
• Competitive pricing
• Efficiency
• Customer service

Conflicting Goals
Why Do These Goals Conflict?
• Forces for keeping low inventory
• inventory expensive
• low salvage values
• Forces for keeping high inventory
• long lead times
• customer service is important
• demand is hard to predict
• reduction in transportation quantity
Design for Logistics
• Product and process design key cost drivers of product cost
• Design for Manufacturing used design to decrease manufacturing
costs
• Major supply chain costs include transportation costs, inventory
costs, distribution costs
• Design for Logistics uses product design to address logistics costs
• Key Concepts of Design for Logistics
• Economic packaging and transportation
• Concurrent/Parallel Processing
• Mass Customization
Economic Transportation and Storage

• Design products so that they can be efficiently packed and stored

• Design packaging so that products can be consolidated at cross
docking points
• Design products to efficiently utilize retail space
Examples
• Ikea
• World’s largest furniture retailer
• 131 stores in 21 countries
• Large stores, centralized manufacturing, compactly and efficiently packed
products
• Rubbermaid
• Clear Classic food containers - designed to fit 14x14” Wal-Mart shelves
Concurrent/Parallel Processing
• Objective is to minimize lead times
• Achieved by redesigning products so that several manufacturing steps
can take place in parallel
• Modularity/Decoupling is key to implementation
• Enables different inventory levels for different parts
Traditional Manufacturing
• Set schedules as early as possible
• Use large lot sizes to make efficient use of equipment and minimize
costs
• Large centralized facilities take advantage of economies of scale
Logistic Strategies for variety

• Modularity
• Standardization
• Postponement
• Process Re-sequencing
• Quick Response
Modularity in Product
and Process
• Modular Product:
• Can be made by appropriately combining the different modules

• Modular Process:
• Each product undergo a discrete set of operations making it possible to store
inventory in semi-finished form
• Products differ from each other in terms of the subset of operations that are
performed on them
Modularity in Product and Process

• Semiconductor fabrication is modular since the type of chip produced

depends on the unique set of operations performed
• Oil refining is not modular since it is continuous and inventory storage
of semi-finished product is difficult
Product Standardization
• Downward Substitution
• Produce only a subset of products (because producing each one incurs high
setup cost)
• Guide customers to existing products
• Substitute products with higher feature set for those with lower feature set
• Which products to offer, how much to keep, how to optimally substitute ?
Procurement Standardization
• Consider a large semiconductor manufacturer
• The wafer fabrication facility produces highly customized integrated circuits
• Processing equipment that manufactures these wafers are very expensive
with long lead time and are made to order
• Although there is a degree of variety at the final product level, each wafer has
to undergo a common set of operations
• The firm reduces risk of investing in the wrong equipment by pooling
demand across a variety of products
Postponement Example
• Demand for black t-shirts
• 50% probability 100
• 50% probability 200
• Same for white t-shirts
• Production alternatives
Produce 150 of each color ahead of time
Produce 300 which can be dyed after demand is observed
Postponement: Key Concepts
• Delay differentiation of products in the same family as late as possible
• Enables the use of aggregate forecasts
• Enables the delay of detailed forecasts
• Reduces scrapped or obsolete inventory, increases customer service
• May require new processes or product design with associated costs
Benetton: Background
• A world leader in knitwear
• Massive volume, many stores
• Logistics
• Large, flexible production network
• Many independent subcontractors
• Subcontractors responsible for product movement
• Retailers
• Many, small stores with limited storage
Benetton: Supply Cycle
• Primary collection in stores in January
• Final designs in March of previous year
• Store owners place firm orders through July
• Production starts in July based on first 10% of orders
• August - December stores adjust orders (colors)
• 80%-90% of items in store for January sales
• Mini collection based on customer requests designed in January for
Spring sales
• To refill hot selling items
• Late orders as items sell out
• Delivery promised in less than five weeks
Benetton: Flexibility
• Business goals
• Increase sales of fashion items
• Continue to expand sales network
• Minimize costs
• Flexibility important in achieving these goals
• Hard to predict what items, colors, etc. will sell
• Customers make requests once items are in stores
• Small stores may need frequent replenishments
It is hard to be Flexible when
• Lead times are long
• Retailers are committed to purchasing early orders
• Purchasing plans for raw materials are based upon extrapolating from
10% of the orders

How to be flexible?
Postponement
Benetton
Old Manufacturing Process
Sequence of Processes

• Spin or Purchase Yarn

• Dye Yarn
• Finish Yarn
• Manufacture Garment Parts
• Join Parts
Benetton
New Manufacturing Process
Re-Sequencing of Processes

• Spin or Purchase Yarn

• Manufacture Garment Parts
• Join Parts
• Dye Garment (This step is postponed)
• Finish Garment
Benetton: Postponement
• Why the change?
• The change enables Benetton to start manufacturing before color choices are
made
• What does the change result in?
• Delayed forecasts of specific colors
• Still use aggregate forecasts to start manufacturing early
• React to customer demand and suggestions
• Issues with postponement
• Costs are 10% higher for manufacturing
• New processes had to be developed
• New equipment had to be purchased
A new Supply Chain Paradigm
• A shift from a Push System...
• Production decisions are based on forecast
• …to a Push-Pull System
From Make-to-Stock Model….
Suppliers Assembly Configuration
 Demand Forecast

• The three principles of all forecasting techniques:

• Forecasts are usually wrong
• The longer the forecast horizon the worst is the forecast
• Aggregate forecasts are more accurate
• The Risk Pooling Concept
Push-Pull Boundary

• Point where the Production Process switches from Push to Pull

(or Build-to-Forecast to Build-to-Order); also known as De-Couple
Point.
De-Couple Points
• Before Product Variety explodes
• After long lead time stages
• After stages with constraint capacity
• After stages with large setup times or costs.
• They occur typically between component manufacturing and Sub-
assembly,
or between Sub-assembly and Final assembly, or between Final
assembly and Distribution,
or between Distribution and Retail.
Push-Pull Supply Chains
The Supply Chain Time Line

Customers
Suppliers

PUSH STRATEGY PULL STRATEGY

Low Uncertainty High Uncertainty

Push-Pull Boundary
Organizational Skills Needed

Raw
Material Customers
Push Pull

Low Uncertainty High Uncertainty

Long Lead Times Short Cycle Times

Cost Minimization Service Level

Resource Allocation Responsiveness