A Theory of Production Competence Revisited*

A recent article [3] proposed a definable relationship between production competence and business performance and presented empirical evidence to support the relationship. The purpose of this note is four-fold. First, it corrects the authors' numerical measure of production competence. The correction changes the nature of the relationship between competence and performance. Second, this note suggests an improved numerical measure of business performance (the dependent variable in the study). The authors of [3] defined performance in a manner which inadvertently captures elements used to measure production competence (the independent variable). The result is a deceptively close fit of the authors' model with the data. The third purpose of the note is to introduce a more appropriate theoretical framework for the production competence construct. It is shown that production competence is closely related to the formulation and implementation of manufacturing strategy and can best be understood within that context. Last, an alternative conceptual model of the relationship between business strategy, production competence, and business performance is presented. The new model includes a construct which measures the “fit” of a firm's business strategy to its external, competitive environment.     

Manufacturing Proactiveness and Performance*

Since Skinner's [40] landmark article depicting the manufacturing function as the “missing link” in corporate strategic processes, a portion of the blame for inferior performance in many firms has been attributed to the subordinate strategic position of manufacturing. It has been argued that part of the solution to misalignments between the capabilities possessed by manufacturing and the requirements dictated by customers is for manufacturing to take a more proactive stance. However, little research has been reported which examines manufacturing proactiveness empirically. In this paper, we address this gap by developing an operational definition of manufacturing proactiveness and testing empirically whether a link exists between proactiveness and performance based on data collected from a sample of manufacturers. Based on the manufacturing strategy literature, we identify two major dimensions of manufacturing proactiveness: (1) the degree of manufacturing's involvement in the strategic processes of the business unit; and (2) the degree of commitment to a long-term program of investments in manufacturing structure and infrastructure aimed at building capabilities in anticipation of their need. We develop reliable scales for measuring each of the dimensions of proactiveness and use the data to provide evidence of a clear link between manufacturing proactiveness and business performance. We show that investments in structural programs coupled with either high levels of manufacturing involvement in strategic processes or planned investments in infrastructural programs correlate with higher than average performance.     

Optimal Acquisition of FMS Technology Subject to Technological Progress*

In order to gain competitive advantage, a firm must link its technology choice to its total manufacturing strategy and business unit's goals. A dynamic model is presented to examine the strategic decision concerning the acquisition of flexible manufacturing systems (FMS) technology. A major contribution of this model is its ability to capture the strategic benefits of FMS with respect to economies of scope and technological progress. Decisions such as the timing and size of new technology acquisition and the scrapping of conventional capacity are explored as a firm plans for the upgrading of its facility to meet future dynamic strategic goals. This model may be used to assist with strategic planning because it identifies the critical relationships and trade-offs between various exogenous forces (such as market growth or decay, the cost of acquiring flexible manufacturing systems, and the rate of technological progress) and the decision variables considered.     

A Reexamination of ‘Measuring the Congruence Between Market Requirements and Manufacturing: A Methodology and Illustration'*

This paper reexamines the idea of developing an index of manufacturing fit with market requirements. Bozarth and Berry's (1997) recent work provides a starting point. Several conceptual and methodological issues relating to the Bozarth and Berry approach are raised. It is argued that the indifference profile concept suggested by the authors bears reexamination.     

Measuring the Congruence Between Market Requirements and Manufacturing: A Methodology and Illustration*

This paper presents a measurement methodology, based on existing research in the manufacturing strategy and general strategy areas, for evaluating the congruence between market needs and manufacturing plant capabilities. The proposed methodology has several important advantages over current approaches. First, the methodology uses available data and statistical techniques to measure market-manufacturing congruence. As a result, it is not dependent on assumptions about “classic” process choices. Second, the proposed methodology can evaluate the strategic fit between market needs and manufacturing in light of one or more performance criteria. Third, the methodology can be used to derive scalar measures of market-manufacturing congruence, allowing users to evaluate congruence for a large number of products, customers, or market segments. The theoretical basis, research objectives and major steps of the methodology are discussed, followed by an illustrative example from a North American manufacturer. Finally, the applicability of the methodology to a wide range of strategic manufacturing decisions is discussed.     

Concepts,Theory, and Techniques THE LOT-SIZE REORDER-POINT MODEL WITH UPSTREAM-DOWNSTREAM UNCERTAINTY*

One assumption in the classical lot-size problem is certainty in the amount requisitioned. In many practical situations, however, the amount received may be a random variable. In this paper, we discuss a lot-size inventory problem in which the quantity received does not necessarily match the quantity requisitioned. We develop explicit and approximate solutions for the back-orders case by assuming that the standard deviation of the amount received is linearly related to the quantity requisitioned.     

User Perceptions of Decision Support Effectiveness: Two Production Planning Experiments*

Decision support systems continue to be very popular in business, despite mixed research evidence as to their effectiveness. We hypothesize that what-if analysis, a prominent feature of most decision support systems, creates an “illusion of control” causing users to overestimate its effectiveness. Two experiments involving a production planning task are reported which examine decision makers' perceptions of the effectiveness of what-if analysis relative to the alternatives of unaided decision making, and quantitative decision rules. Experiment 1 found that almost all subjects believed what-if analysis was superior to unaided decision making, although using what-if analysis had no significant effect on performance. Experiment 2 found that decision makers were indifferent between what-if analysis and a quantitative decision rule which, if used, would have led to significant cost savings. Thus, what-if analysis did create an illusion of control: decision makers perceived performance differences where none existed, and did not detect large differences when they were present. In both experiments, decision makers exhibited difficulty realizing that their positive beliefs about what-if analysis were exaggerated. Such misjudgments could lead people to continue using what-if analysis even when it is not beneficial and to avoid potentially superior decision support technologies.     

THE CLASSIC ECONOMIC PRODUCTION QUANTITY MODEL WITH SETUP COST AS A FUNCTION OF CAPITAL EXPENDITURE*

The formulation of the classic economic production quantity (EPQ) model is extended to include setup cost as a function of capital expense. Additional capital will buy reduced setup cost. Thus, the objective now is to balance holding, setup, and capital expenses. This new formulation is solved under conditions where setup cost varies exponentially and linearly as a function of capital expense. Decision rules are formulated to indicate under what conditions setup cost reduction reduces total cost. For the linear function, it is shown that once the decision to reduce setup cost is justified, the optimal choice is the minimum setup cost that is technologically feasible.     

Scheduling with Sequencing Flexibility*

This study examines the effects of sequencing flexibility on the performance of rules used to schedule operations in manufacturing systems. The findings show that taking advantage of even low levels of sequencing flexibility in the set of operations required to do a job results in substantial improvement in the performance of scheduling rules with respect to mean flowtime. Differences in the mean flowtime measure for various rules also diminish significantly with increasing sequencing flexibility. Performance improvements additionally result for such due-date related performance measures as mean tardiness and the proportion of jobs tardy. At high levels of sequencing flexibility, some nonparametric scheduling rules outperform the shortest processing time rule in terms of the mean flowtime criterion. Rules based on job due dates also outperform rules based on operation milestones in terms of tardiness related criteria at high levels of sequencing flexibility. The implications of these findings for the design of manufacturing systems and product design are noted.     

A LOWER BOUND FOR THE SINGLE-LEVEL DYNAMIC HORIZON LOT-SIZING PROBLEM

Conventional production planning methods assume the existence of a medium- or longrange demand horizon. However, demand usually is known over a much shorter range; scheduling decisions must be made within this “decision window,” which rolls forward in time. This paper presents a new lower bound for lot-sizing heuristics in a rolling-horizon framework and compares it to the well-known Wagner-Whitin bound. The new bound indicates heuristic schedules that have costs close to the optimum. Rolling-horizon schedule costs are compared to corresponding static-horizon schedule costs (assuming the whole horizon is known in advance), using the ratio of decision-window size to the natural order cycle as a parameter. For values below unity, the rolling-horizon policy is significantly more costly. For values above one, the two policies have similar costs and actually converge as the parameter value increases.     

A Simulation Study of Sequencing Rules in a Kanban-Controlled Flow Shop*

This paper addresses the problem of sequencing in decentralized kanban-controlled flow shops. The kanban production control system considered uses two card types and a constant withdrawal period. The flow shops are decentralized in the sense that sequencing decisions are made at the local workstation level rather than by a centralized scheduling system. Further, there are no material requirements planning (MRP)-generated due dates available to drive dispatching rules such as earliest due date, slack, and critical ratio. Local sequencing rules suitable for the decentralized kanban production-control environment are proposed and tested in a simulation experiment. These rules are designed so that they can be implemented with only the information available at the workstation level. Example sequencing problems are used to show why the shortest processing time rule minimizes neither average work-in-process inventory nor average finished-goods withdrawal kanban waiting time. Further, it is shown how work station supervisors can use the withdrawal period, in addition to the number of kanbans, to manage work-in-process inventories.     

Important Strategic and Tactical Manufacturing Issues in the 1990s*

This paper reports the identification and ranking of major manufacturing issues that American manufacturing managers and academics must focus on and resolve in the 1990s to be competitive on a global basis. Vice-presidents of manufacturing from over 75 companies across the United States were asked in a Delphi study to rank the key strategic and tactical issues facing American manufacturing in the next three to five years. Based on three rounds of a Delphi study, quality management, manufacturing strategy, and process technology emerged as the top ranked strategic issues. The top ranked tactical issues were quality control, manufacturing planning and control systems, and work force supervision. These issues were valid across diverse industry groups, since the industrial and educational background of the respondents was shown to have no impact on the final consensus rankings and opinions reported in this paper. Factor analysis of the responses by the panel revealed that certain issues tend to be consistently viewed together, and were interpreted accordingly to provide insights into the ranking of issues. Apart from building a consensus among experts on key manufacturing issues of present and future importance, this study can also be helpful for setting future academic research and pedagogical priorities for the field of production and operations management.     

A Model for Resource Constrained Production and Inventory Management

We present a general model for multi-item production and inventory management problems that include a resource restriction. The decision variables in the model can take on a variety of interpretations, but will typically represent cycle times, production batch sizes, number of production runs, or order quantities for each item. We consider environments where item demand rates are approximately constant and performing an activity such as producing a batch of a product or placing an order results in the consumption of a scarceresource that is shared among the items. Some examples of shared resources include limited machine capacity, a restriction on the amount of money that can be tied up in stock, orlimited storage capacity. We focus on the case where the decision variables must be integer valued or selected from a discrete set of choices, such as when an integer number of production runs is desired for each item, or in order quantity problems where the items come in pack sizes containing more than one unit and, therefore, the order quantities must be an integer multiple of the pack sizes. We develop a heuristic and a branch and bound algorithm for solving the problem. The branch and bound algorithm includes reoptimization procedures and the heuristic to improve its performance. Computational testing indicates that the algorithms are effective for solving the general model.     

Effects of Product Structure Complexity on Multi-level Lot Sizing*

As an input to the materials requirement planning (MRP) process, the product structure interacts with the lot-sizing rules to affect inventories, materials flow, and production costs. Despite engineering constraints, considerable latitude is still available to construct alternate product structures for the same product. An important concern of MRP managers and designers is the impact of product structure complexity on the cost performance of the lot-sizing rules. To date, there exists no detailed research that provides managers with guidelines that relate the lot-sizing rules to individual product structure parameters. We report on an extensive experiment to test the effects of individual product structure parameters on the relative cost performance of 11 lot-sizing rules. Three parameters—the number of items, number of levels, and commonality index—are proposed to characterise product structure complexity and used as factors in an experiment involving a large variety of product structures. The results indicate that all three parameters affect the relative cost differences but not the ranking of the rules. The overall best lot-sizing rule is Bookbinder and Koch's [11] rule.     

Vendor Selection with Bundling*

Product bundling has become increasingly prevalent not only in consumer goods but also in the industrial sector. We study a purchasing problem in which a buyer must obtain necessary numbers of various stock items from a variety of vendors who charge different prices, have limited capacities and different levels of quality, and offer bundled products at discounted prices. We examine relationships among different bundling scenarios and show that the most general scenario is one in which free items are given to the buyer when sufficient quantities are purchased. We develop a mixed integer linear program that finds the purchasing strategy for the buyer that minimizes the total purchase cost. We present computational results which indicate that the problem is very tractable to solve optimally on a personal computer with standard optimization software. Finally, three extensions of the model are discussed.     

THE IMPACT OF EXTREME OBSERVATIONS ON SIMPLE FORECASTING METHODS*

In general linear modeling, an alternative to the method of least squares (LS) is the least absolute deviations (LAD) procedure. Although LS is more widely used, the LAD approach yields better estimates in the presence of outliers. In this paper, we examine the performance of LAD estimators for the parameters of the first-order autoregressive model in the presence of outliers. A simulation study compared these estimates with those given by LS. The general conclusion is that LAD does not deal successfully with additive outliers. A simple procedure is proposed which allows exception reporting when outliers occur.     

Causal Linkages in Supply Chain Management: An Exploratory Study of North American Manufacturing Firms

In this paper we investigate the key causal linkages in supply chain management. We propose a conceptual framework and test this framework on data from 215 North American manufacturing firms using structural equation modeling techniques. Three major research issues are addressed in this study: Do sourcing decisions affect the degree to which firms achieve manufacturing goals of cost, flexibility, dependability, and quality? Does the degree of manufacturing goal achievement lead to higher customer responsiveness? Does the degree of manufacturing goal achievement lead to higher internal manufacturing performance? The study examines the relationship among sourcing decisions, manufacturing goals, customer responsiveness, and manufacturing performance. The results support the notion that an integrated supply chain involves aligning sourcing decisions to achieve manufacturing goals that are set to respond favorably to the needs of customers.     

Distinguishing Features of Just-in-Time Systems in the Make-to-Order/Assemble-to-Order Environment*

Few studies of just-in-time (JIT) implementation examine their significance in make-to-order manufacturing environments. This study examines the relative importance of several operating variables that are characteristic features of JIT systems within such environments in North America. The results suggest that the most salient features of JIT for make-to-order and assemble-to-order firms are the elimination of waste (in the form of time and defects), reduced setup time, reduced lotsize, and a smaller pool of suppliers. In addition, the results suggest that the use of non-domestic suppliers can possibly hinder efforts at JIT implementation of materials procurement.     

PROCEDURES FOR DETERMINING RELATIVE FREQUENCIES OF PRODUCTION/ORDER IN MULTISTAGE ASSEMBLY SYSTEMS*

We show that the problems of determination lot sizes in a multistage assembly system for the case of instantaneous production and constant demand for the end item can be reduced to the problems of determining relative frequenceis of production/order for items at each production stage. We further show that such frequencies are independent of the demand levels. Optimal and near-optimal solution procedures for this reduced problem are provided. The near-optimal procedure successively treats each stage of production as a final production stage while simulatenously incorporating decisions made at lower stages into decisions made at higher stages. Experimental results show that the near-optimal procedure results in optimal solutions 75 percent of the time and performs considerably better than representative heuristics available in the literature. Further, its performance is relatively less susceptible to product/structural characteristics of the system.     

Redesigning a Cellular Manufacturing System to Handle Long-Term Demand Changes: A Methodology and Investigation*

Cellular manufacturing systems have been proposed as an alternative to the job shop since they provide some of the operational benefits of a flow line production process, while retaining to some extent the flexibility of job shops. However, this must be balanced against the possibility of additional initial investments in equipment to form the cells and a certain loss in manufacturing flexibility, particularly in terms of the ability to deal with long-term demand changes. This paper presents a model-based heuristic cell system redesign methodology to deal with such demand changes. The methodology is validated and applied to system designs generated from several data sets published in the literature. Results show that different kinds of demand changes incur distinct kinds of costs. Further, characteristics of cell designs that can handle long-term demand changes at least cost are identified.