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Weekly UpdatesEXECUTIVE SUMMARY
The objective of this field study is to examine the applicability and potential advantages of pull operational practices in a mid-size manufacturing organization. The results derived based on this field study point to both operational gains and customer-related benefits which can be attributed to pull operational practices.
Keywords: Re-engineering, Pull Practices, Mid-size Manufacturing, Marketing
INTRODUCTION
The framework depicted in Figure 1 was used to examine the current operational practices in a mid-size, welded stainless steel pipe firm. It was also used to identify areas of improvement in the existing operational system. Concepts related to the Theory of Constraints (TOC) and Business Re-engineering (BR) were used to modify the existing system. The modified system is designed to enhance operational efficiencies as well as the customer orientation of the firm.
The studied firm (XYZ Company) has been in business for more than 50 years. The Company is currently using a push operational system to produce products for inventory. The purpose of this study was to determine the overall benefits to XYZ Company resulting from re-engineering its operational system from traditional manufacturing system to a pull system, driven by customer demand. In the process, the impact of changes in customer requirements on the production line was evaluated. Finally, the TOC principles were used to determine the potential of a competitive advantage to XYZ Company due to the modified operational system.
BACKGROUND
Traditional concepts of effective manufacturing are based on mass production and are often referred to as a push system. In many such manufacturing environments when the output of a product doubles, the real value-added unit cost of manufacturing that product is reduced by a constant percentage (Pearson & Wisner, 1993). This improvement is often called a learning curve, or more precisely a price improvement curve. The objective of the push system is to efficiently use production resources. Such orientation, works well in industries where there is predictable high customer demand and quick product turnaround times such as electrical and automobiles industries. Altiok and Ranjan (1995) note that in a push system, the production schedules are generally based on the demand forecast. Under a push system, each stage runs at maximum capacity pushing material downstream. Kenward (1992) recognizes that a traditional push system is based on maximizing not only capacity, but also labor efficiency. In a push system, it is relatively easy to determine which operations are running at full capacity. Buffer stocks are often used to account for uncertainty in customers' demand and supply variations. Although this work-in-process appears as an asset on the balance sheet, it is really a liability because the operation must incur costs to carry the work-in process.
[FIGURE 1 OMITTED]
Krishnamurthy, Suri, and Vernon (2000) studied the performance of a flexible manufacturing line. They compared the throughput and average inventory characteristics under a pure push system with other manufacturing strategies.
Results indicated that the pure push strategy has a higher throughput for a given level of inventory than other strategies. However, the push system advantages in terms of operational efficiency may be at the expense of the customer focus. Maximizing the throughput of individual manufacturing subprocesses often creates large work-in-process inventories throughout the plant.
The objective of the pull system is to link the production process to customer demands and to enable manufacturing firms to meet changes in demand with minimal production costs and minimal waste. Implementation of Just-in-Time (JIT) techniques have been reported in the literature. Hancock and Zayko (1998) note that the implementation of JIT in the U.S. is proceeding slowly. However, JIT improves quality, increases productivity, and reduces delivery time. Using an empirical study, Wafa and Yasin (1998) examined the effective implementation of JIT philosophy in manufacturing environments. They identified factors that hinder JIT success. Such factors are technology, procedures, people, and organizational culture. They also suggest that for JIT to be successful, it has to be an organizational-wide philosophy where open communication between management and workers is the norm rather than the exception.
Kupanhy (1995) states that practical implementation of JIT can be fruitful when implementation steps are reduced as may be the case when resources are limited. Although JIT is often implemented in manufacturing under the name of a pull system, Yasin, Wafa, and Small (2001) examined the effectiveness of JIT in the U.S. public sector. They investigated the relationships between organizational modification efforts prior to JIT implementation, problems encountered during implementation, and JIT success. Results support the finding that JIT has the potential to increase the operational efficiency, service quality, and organizational effectiveness of public sector organizations.
A physicist by education, Eliyahu Goldratt, wrote The Goal, which leads the reader through scheduling concepts based upon the TOC. Manufacturing practices using The Goal have, in many cases, produced results that exceeded expectations. Holmen (1995) underlined eight assumptions to implement the TOC. Ruhl (1997) provided a detailed explanation of the TOC as well as a simple example of how profit can be maximized in a manufacturing environment by following the TOC principles. Since the first step in applying the TOC is to identify the constraint, Bushong and Talbott (1999) studied several manufacturing systems in applying the TOC. They found that for manufacturing concerns, the constraint is often, but not always, the time available on a certain machine or process. For companies that employ skilled workers and for many service organizations, the constraint is often the time of one or a few key employees. They also concluded that the use of the TOC as a management philosophy is a dynamic process. Once the constraint is identified, management should examine whether it can be relaxed or removed. If this is possible, some other factors may become new constraints. Therefore, the analysis should be revised conducted on a total system basis.
Many researchers and managers have applied the TOC to a wide range of industries and products. Draman and Salhus (1998) significantly improved the production processes at a paint factory by implementing the TOC. Activity based costing (ABC) and TOC were integrated in order to analyze a manufacturing system (Cooper & Slagmulder, 1999). The researchers concluded that although the TOC is a tactical cost management technique and the ABC is a strategic-oriented method, both methods are complementary, cost management techniques. The TOC and ABC can also be used together to identify the best short-term and long-term product mixes.
Ogan and Heitger (1999) studied the TOC in combination with JIT, total quality management (TQM), computer integrated manufacturing (CIM), electronic data interchange (EDI), and ABC. The authors concluded that this family of alternatives could help corporate managers evaluate new business practices that are best suited to their business models. It is important to note that specific practices have varying results depending on the nature of the business.
Preventive maintenance programs, like many continuous improvement projects, are often selected using Pareto Analysis by focusing on the resource with the most unscheduled down time. However, Chakravorty and Atwater (1994) used the TOC to direct preventive maintenance. The study did not focus on reducing the cost like many other improvement programs but instead on increasing the level of manufacturing. The TOC has been also applied in a small business that requires skilled workers. In their study, Bushhong and Talbott (1999) added a quality aspect to the analysis. It has been found that the faster the production process, the more profitable the product.
Hales and Savoie (1994) suggested a foundation for successful Business Process Re-engineering. The authors listed four key phases Business Re-engineering will pass through. These key phases are orientation, overall planning, detailed design, and implementation. McCloud (1994) introduced a business-reengineering program to improve throughput, customer relations and productivity, as well as to reduce operational costs. Business Re-engineering was also implemented in a supply chain management approach.
Business Process Re-engineering has also been used to re-engineer manufacturing and service operational systems. Czuchry, Yasin, and Norris (2000) examined the applicability of process re-engineering in a healthcare operational environment. The intake process was analyzed systematically to identify process-related problems. In their study, the systematic redesign of the intake process resulted in performance improvements in terms of cost, quality, service, and timing.
Cause-and-effect analysis (root cause analysis) uses diagramming techniques to identify the relationship between an effect and its causes. Cause-and-effect diagrams are also known as fishbone diagrams. Kerzner (1998) established six-step process to perform a cause-and-effect diagram.
Root cause analysis has bean applied in different industries. Eli (2001) applied root cause analysis in a petrochemical industry. This study was conducted by a team of qualified engineers using innovation techniques, established performance, and well-designed analysis procedures. Root cause analysis has also been implemented in the service industry. Beyea and Nicoll (1999) applied cause root analysis in healthcare. The results of their study provided information that could significantly contribute to the clinical decision-making process. Root cause analysis was used as a framework for analyzing financial and business performance (Grundy, 1997).
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