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BUS002 – Operations Management

21/10/2013

BUILD-TO-ORDER
By:

Lorenzo Cislaghi
Maurizio Melzi

Queen Mary University of ...
0. Build-to-Forecast
BTF is a production approach where products are built on forecast demand rather than actual.
• Mass p...
0. Build-to-Order
BTO is a production approach where products are not built until a confirmed order for
products is receiv...
1. BtO – Product-Process matrix
Variety

Product
characteristics

Volume

Process
characteristics

Project
Jobbing

BTO

B...
1. BtO – Performance objectives
QUALITY

FLEXIBILITY
Customer satisfaction meeting
Volume/Mix actual demand

• Quality ass...
1. BtO – Design Process objectives
OPERATIONS OBJECTIVES

DESIGN PROCESS OBJECTIVES

PROCESS CHARACTERISTICS

FLEXIBILITY
...
1. Today, Tomorrow and
Focusing on keeping production flexible
and shortening lead times by eliminating
waste leads to bes...
2. Just in Time
“I plan to cut down on the slack time within work processes and in the shipping of parts and materials as ...
2. Pull System
PULL SYSTEM is a material-flow control based on the replenishment of only those quantities that
have alread...
3. Waste Reduction
• Eliminating all waste that adds cost without
adding to value.
• Map the activities that added value t...
4. Total Quality Management

T
Q
M

otal: everyone in the supply chain is involved in (including suppliers)
uality: qualit...
5. Takt
“Row, row, row”
• Takt (rhythm) comes from the rate customers
are buying the product and determines the
“pull” for...
Lean manufacturing
• BtO process optimal features are summarized in the concept of Lean Manufacturing.
• The core idea is ...
6. Product (line) layout
Component-related Knowledge

Body shop

Body-inwhite

Paint shop

Painted
body store

Assembly

T...
6. Cell Layout
Architectural-related Knowledge
Cell 1 – Welding

Cell 3 - Assembly

Cell 2 - Paint shop
6. Cell Layout
The process is
more flexible, but more expensive

• Meet the actual demand
(volume and mix)
• Changeover

•...
2013

2013

2012

2012

2011

2011

2010

2010

2009

2009

2008

2008

2007

2007

2006

2006

2005

2005

2004

2004

20...
2013

2013

2012

2012

2011

2011

2010

2010

2009

2009

2008

2008

2007

2007

2006

2006

2005

2005

2004

2004

20...
09-2013

05-2013

01-2013

09-2012

05-2012

01-2012

09-2011

05-2011

01-2011

09-2010

05-2010

01-2010

09-2009

05-20...
8. Performance Evaluation
• RoCE = Return of Capital Employed

RoCEpre-tax =

EBIT
_
Long-term capital invested

+ Measure...
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000 Sparkline

2.20

0.70

-3.80

4.50

28.00

31.80

16.60

32.50
...
1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000 Sparkline

14.80

10.70

9.30

7.70

5.60

3.60

5....
1993

1994

1995

1996

1997

1998

1999

2000 Sparkline

16.00

16.70

15.00

10.90

5.60

7.70

7.20

8.00

10.60

8.60
...
9. Market Segmentation
BtF
Chrysler

Ford

GM

12.8%

5.5%

4.3%

Large family
cars, SUV, MUV

Fleet, Small and Large
cars...
9. Market Segmentation
BtO

BtF

Toyota

Nissan

Honda

8.8%

-0.5%

12.8%

Small, Large car,

Small, Large, Family
cars

...
9. Market Segmentation
BtO

BtF

Daimler

BMW

VW Group

10.1%

10.1%

9.2%

Executive, sport cars

Executive, sports cars...
9. Market Segmentation
Mass market

STRATEGY

Small and fragmented
Marketing
• Target the
correct market
segmentation

Ope...
10. Choose your car

Customise your own car !

COST: 9,795 £
DELIVERY: Now
COMFROT: Power steering, electric mirrors
and e...
11.
Can they work together?

“How do you pronounce DaimlerChrysler?…
‘Daimler’—the ‘Chrysler’ is silent.”
References
• Matthias Holweg and Frits K. Pil, The Second Century: Reconnecting
Customer and Value Chain through Build-to-...
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Build to order

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Build-to-Order analysis and Lean Manufacturing.
Marketing, financial and operations analysis of BtO production system.

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Build to order

  1. 1. BUS002 – Operations Management 21/10/2013 BUILD-TO-ORDER By: Lorenzo Cislaghi Maurizio Melzi Queen Mary University of London A.Y. 2013-2014
  2. 2. 0. Build-to-Forecast BTF is a production approach where products are built on forecast demand rather than actual. • Mass process and economies of scale • Overproduction and “push” system It is the most appropriate approach for high volume and low variety of products Its non-flexible layout implies long lead times and costs for customized orders. BTF does not permit to build the car the customer wants, when the customer wants it
  3. 3. 0. Build-to-Order BTO is a production approach where products are not built until a confirmed order for products is received. Customers highly customized requests can be satisfied. Reconnect the value chain to the customer
  4. 4. 1. BtO – Product-Process matrix Variety Product characteristics Volume Process characteristics Project Jobbing BTO Batch BTF Mass Continuous • High-customized products need a correct process type based on correct objectives. • It is necessary to give up an high volume of production for developing the flexibility needed for meeting actual customers requests. • Mass process is not designed for satisfying customers specifications without high costs and long lead times. Transit from a mass process to a batch process
  5. 5. 1. BtO – Performance objectives QUALITY FLEXIBILITY Customer satisfaction meeting Volume/Mix actual demand • Quality assurance because each defect is an high cost with small batches and noinventory COST • Avoiding waste for dealing with no economies of scale (less volume) DEPENDABILITY • Delivering on-time to the next process because inventory safety is absent SPEED • Satisfying quickly customized requests (loss of sales) and takt between processes.
  6. 6. 1. BtO – Design Process objectives OPERATIONS OBJECTIVES DESIGN PROCESS OBJECTIVES PROCESS CHARACTERISTICS FLEXIBILITY - Changeover ability Skilful people Meeting variable demand - Cell layout Architectural knowledge Flow/Pull System COST - Reducing holding cost and inventory Avoiding quality costs Eliminating waste activities - Just-in-time Total Quality Management Waste reduction DEPENDABILITY - Delivering items on time for dealing with no inventory Assuring replenishment according to actual demand - Just in Time Pull system Flow - SPEED - Reducing lead times Synchronization between processes - Flow Takt QUALITY - Total control Suppliers control Stop and fix - Flow Total Quality Management
  7. 7. 1. Today, Tomorrow and Focusing on keeping production flexible and shortening lead times by eliminating waste leads to best quality and lowest cost, while improving safety and morale. TPS House is an example of correct objectives set and process design for implementing a BTO system.
  8. 8. 2. Just in Time “I plan to cut down on the slack time within work processes and in the shipping of parts and materials as much as possible. As the basic principle in realizing this plan, I will upload the ‘just in time’ approach. The guiding rule is not to have goods shipped too early or too late.” Kiichiro Toyoda JIT is a production strategy based on producing and delivering the right items at the right time in the right amounts at the right place. It is like going to a supermarket: - Required quantity at the required time - Stock only what it expects to sell - Replenishment when items run low on the shelf - Take only what you need, resupply is assured. Each process is a customer of preceding processes, and the preceding processes are a kind of store This pull system reduces in-process inventory and lead times.
  9. 9. 2. Pull System PULL SYSTEM is a material-flow control based on the replenishment of only those quantities that have already been consumed by the next process. The “pull” comes directly from customer actual demand. In the supply chain, each process is a “customer” that withdraws from the previous process. Replenishment of what is needed, when is needed, in the needed quantity at short intervals. It aligns costly inventory levels with actual consumption and implement the flow. A signal (Kanban) is sent to produce and deliver a new shipment as material is consumed
  10. 10. 3. Waste Reduction • Eliminating all waste that adds cost without adding to value. • Map the activities that added value to the product and getting rid of non value adding activity • Do what internal and external customers want from the process No waste means reducing costs and lead times
  11. 11. 4. Total Quality Management T Q M otal: everyone in the supply chain is involved in (including suppliers) uality: quality built in the process and continuos improvement anagement: enhancing quality with data and profound knowledge No inventory means a line can not operate from in-process inventory while a production problem is fixed. Lowering the water level of inventory exposes problem. Each part has to fit perfectly because inadequate quality means costs in JIT. Build a culture of stopping to fix problems when they occur, to get quality right in the first time. Focusing on quality reduces costs more than focusing only on cost
  12. 12. 5. Takt “Row, row, row” • Takt (rhythm) comes from the rate customers are buying the product and determines the “pull” for the system. • It is the maximum time available for producing a product in order to correctly satisfy the demand. • Make one department extra efficient can bury other departments in excess inventory. Processes speed must be synchronized. Takt is necessary for implementing a flow that does not create inventory
  13. 13. Lean manufacturing • BtO process optimal features are summarized in the concept of Lean Manufacturing. • The core idea is to maximize customer value with fewer resources minimizing waste.
  14. 14. 6. Product (line) layout Component-related Knowledge Body shop Body-inwhite Paint shop Painted body store Assembly Test and rework
  15. 15. 6. Cell Layout Architectural-related Knowledge Cell 1 – Welding Cell 3 - Assembly Cell 2 - Paint shop
  16. 16. 6. Cell Layout The process is more flexible, but more expensive • Meet the actual demand (volume and mix) • Changeover • No economies of scale • Flexible labour is required (architectural knowledge) The material flow is significantly improved
  17. 17. 2013 2013 2012 2012 2011 2011 2010 2010 2009 2009 2008 2008 2007 2007 2006 2006 2005 2005 2004 2004 2003 2003 2002 2002 2001 2001 2000 2000 1999 1999 1998 1998 1997 1997 1996 1996 1995 1995 1994 1994 1993 7. Financial Data DJIA Ford Motor Corp. & General Motor Corp. 18000.00 80 16000.00 70 14000.00 60 12000.00 50 10000.00 40 8000.00 30 6000.00 4000.00 20 2000.00 10 0.00 0
  18. 18. 2013 2013 2012 2012 2011 2011 2010 2010 2009 2009 2008 2008 2007 2007 2006 2006 2005 2005 2004 2004 2003 2003 2002 2002 2001 2001 2000 2000 1999 1999 1998 1998 1997 1997 1996 1996 1995 1995 1994 1994 1993 7. Financial Data NIKKEI 225 Toyota Motor Corp. & Honda Motor Corp. source: Yahoo Finance - Historical Data 25000 160 140 20000 120 15000 100 80 10000 60 5000 40 20 0 0
  19. 19. 09-2013 05-2013 01-2013 09-2012 05-2012 01-2012 09-2011 05-2011 01-2011 09-2010 05-2010 01-2010 09-2009 05-2009 01-2009 09-2008 05-2008 01-2008 09-2007 05-2007 01-2007 09-2006 05-2006 01-2006 09-2005 05-2005 01-2005 09-2004 05-2004 01-2004 09-2003 05-2003 01-2003 09-2002 05-2002 01-2002 09-2001 05-2001 01-2001 09-2000 05-2000 01-2000 7. Financial Data DAX 30 Volkswagen AG & Daimler AG 10000 9000 250 8000 7000 200 6000 5000 150 4000 100 3000 2000 50 1000 0 0
  20. 20. 8. Performance Evaluation • RoCE = Return of Capital Employed RoCEpre-tax = EBIT _ Long-term capital invested + Measure of efficiency - No clear benchmark + Values profitability - Over-production is awarded + No biases because of taxes
  21. 21. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Sparkline 2.20 0.70 -3.80 4.50 28.00 31.80 16.60 32.50 22.40 #N/D #N/D #N/D 9.80 2.30 -3.40 -0.10 5.70 6.20 4.40 4.40 6.40 10.90 10.50 7.10 8.70 -3.10 -8.50 -4.00 3.30 9.20 9.60 6.40 7.60 4.30 8.20 5.80 1992 1993 1994 1996 1997 1998 1999 2000 Chrysler 1995 1990 1991 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 -5.00 -10.00 1989 1990 USA Chrysler Ford GM 1989 8. Performance Evaluation Ford GM Best performer: Build to Forecast
  22. 22. 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Sparkline 14.80 10.70 9.30 7.70 5.60 3.60 5.70 7.20 19.30 20.20 21.90 17.30 8.50 8.50 4.00 4.60 -1.30 -2.20 -4.50 -2.30 3.30 -0.60 -0.10 -26.10 13.10 15.80 12.20 7.20 5.30 3.90 4.30 6.20 10.00 9.60 9.30 9.20 1995 1996 1997 1998 1999 2000 25.00 15.00 1993 1992 -15.00 1991 -5.00 1990 5.00 1989 JAPAN Honda Nissan Toyota 1994 8. Performance Evaluation -25.00 Honda Nissan Toyota Best performer: Build to Forecast
  23. 23. 1993 1994 1995 1996 1997 1998 1999 2000 Sparkline 16.00 16.70 15.00 10.90 5.60 7.70 7.20 8.00 10.60 8.60 8.50 11.70 47.90 14.30 14.80 8.60 -3.50 6.50 -2.70 3.70 8.00 14.50 15.10 4.80 10.60 7.40 8.20 1.80 -6.60 1.90 4.70 8.30 15.10 19.50 14.00 19.70 1995 1996 1997 1998 1999 2000 1993 1992 1992 1991 1991 1990 1990 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 -5.00 -10.00 1989 1989 DE BMW Daimler VW Group 1994 8. Performance Evaluation BMW Daimler VW Group Best performer: Build to Order
  24. 24. 9. Market Segmentation BtF Chrysler Ford GM 12.8% 5.5% 4.3% Large family cars, SUV, MUV Fleet, Small and Large cars Fleet, Small and Large cars
  25. 25. 9. Market Segmentation BtO BtF Toyota Nissan Honda 8.8% -0.5% 12.8% Small, Large car, Small, Large, Family cars Small, Large car, MUV, SUV MUV, SUV
  26. 26. 9. Market Segmentation BtO BtF Daimler BMW VW Group 10.1% 10.1% 9.2% Executive, sport cars Executive, sports cars Small, Large, Family cars, executive
  27. 27. 9. Market Segmentation Mass market STRATEGY Small and fragmented Marketing • Target the correct market segmentation Operations • Design the process to achieve perf. objectives Medium-high market
  28. 28. 10. Choose your car Customise your own car ! COST: 9,795 £ DELIVERY: Now COMFROT: Power steering, electric mirrors and electric front window COST: DELIVERY: COMFROT:
  29. 29. 11. Can they work together? “How do you pronounce DaimlerChrysler?… ‘Daimler’—the ‘Chrysler’ is silent.”
  30. 30. References • Matthias Holweg and Frits K. Pil, The Second Century: Reconnecting Customer and Value Chain through Build-to-Order, The MIT Press, 2005 (Chapter 1,2 and 3) • Jeffrey K. Liker, The Toyota Way, McGraw-Hill, 2004 (Part One and Two Section I and II) • Froud, Haslam, Johal, Williams, Cars after financialisation: a case study in financial under-performance, constraints and consequences, Competition and change, 2002 • “Build-to-order, Lean manufacturing, Just-in-Time, TQM and Cellular manufacturing”, Wikipedia

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