Linking performance drivers in production planning and inventory control to process choice

Abstract

This study investigates how process choice relates to production planning and inventory control decisions. We empirically examine the validity of deductively derived patterns about these types of decisions. More importantly, we look for normative insights by exploring how production planning and inventory control decisions affect operations performance. Our findings show that production line and continuous flow plants use more of a level production strategy, and carry less raw material and work‐in‐process inventory. The performance drivers for these plants, through which the operations function excels, are effective utilization of equipment, reduced finished goods inventory, and reduced setup down time. To gain forward demand visibility and batching economies, job and batch shops rely much more on backlogs in their planning process. These plants use more of a production chase strategy and position inventory lower in the bills of materials. Four performance drivers for top‐performing job and batch shops are to find ways that better anticipate customers' orders, have a more responsive chase strategy, carry less raw material or purchased inventory, and shorten production planning horizon, partly through less reliance on backlogs. It is intriguing that top‐performing plants not only do the expected things, given their choice of process, but also excel in selected dimensions—some of which fit the profile normally associated with a different process choice. To monitor and continuously improve operations, evaluation ‘scorecards’ should pay particular attention to performance drivers, which change depending on the plant's process choice.

A contextual analysis of the impact of strategic sourcing and E-procurement on performance

“…The decision on process choice should be arranged in line with the aggregate plan, production scheduling and materials management to improve firm's performance, as noted by Safizadeh and Ritzman (1997). Like manufacturing type, these four process types also provide different impacts on the relationship among strategic sourcing, e-procurement and performance in achieving competitive advantages.…”

Impact of Hybrid Business Models in the Supply Chain Performance

“…When market uncertainty is high (in terms of quantity and timing), a MTO business model ( w h e r e p r o d u c t i o n p l a n n i n g i s m a d e o n a c t u a l o r d e r s r a t h e r t h a n o n f o r e c a s t ) i s recommended (Safizadeh, 1997). An MTO business model allows to eliminate finished goods inventories and reduces the firm's exposure to financial risk -as production is initiated until a customer order is received -but usually spells long customer lead times and large order backlogs (Gupta, 2004).…”

“…As the risk of stockpiling based on un-accurate sales forecasting is avoided by completely precluding building up anticipation stocks, a chase strategy can be used, where the expected demand is tracked and the corresponding capacity is computed, raising it or lowering it accordingly (Buxey, 2003). Safizadeh (1997) suggested that when following a chase strategy, a job shop should be used. A job shop uses generalpurpose equipment and a multi-skilled work force (grouped around the process), which provides a high degree of flexibility and capability that allows the profitable manufacturing of low-volumes of customized products.…”

“…Because of this last is that Li (2001) refers to this business model as a market responsive strategy. When market uncertainty is low (in terms of quantity and timing), a MTS business model ( w h e r e p r o d u c t i o n p l a n n i n g i s m a d e o n f o r e c a s t r a t h e r t h a n o n a c t u a l o r d e r s ) i s recommended (Safizadeh, 1997). An MTS business model allows to compete in response time -as production of a low variety of stable products is made ahead of demand, kept in stock, and shipped upon receipt of orders (meaning little or no order backlog) -but becomes a) costly, when the number of products is large; and b) risky, when demand is highly variable and/or products have short life cycles (Gupta, 2004).…”

“…As the reliability of the sales forecasts (and the low variety of stable product produced) reduces the chance of creating obsolete products, a level strategy can be used, where a steady production is maintained and finished goods (smoothing/anticipation) stocks are used to absorb ongoing differences between output and sales (Buxey, 2003). Safizadeh (1997) suggested that when following a level strategy, a continuous production line should be used. A continuous production line uses automated, special-purpose equipment (grouped around the product), which provides a high degree of efficiency and consistent quality that allows the profitable manufacturing of high-volumes of standardized products.…”