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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
By:
Lorenzo Cislaghi
Maurizio Melzi
BUS002 – Operations Management 21/10/2013
Queen Mary University of London A.Y. 2013-2014
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
BTO is a production approach where products are not built until a confirmed order forproducts is received.
Customers highly customized requests can be satisfied.
Reconnect the value chain to the customer
0. Build-to-Order
Batch
• High-customized products need a correctprocess type based on correct objectives.
• It is necessary to give up an high volumeof production for developing theflexibility needed for meeting actualcustomers requests.
• Mass process is not designed forsatisfying customers specificationswithout high costs and long lead times.
Continuous
Variety
Volume
Mass
Jobbing
Project
Productcharacteristics
Pro
cess
char
acte
rist
ics
Transit from a mass processto a batch process
BTO
BTF
1. BtO – Product-Process matrix
FLEXIBILITYCustomer satisfaction meeting Volume/Mix actual demand
QUALITY
•Quality assurance because each defect isan high cost with small batches and no-inventory
COST
•Avoiding waste for dealing with noeconomies of scale (less volume)
DEPENDABILITY
•Delivering on-time to the next processbecause inventory safety is absent
SPEED
•Satisfying quickly customized requests(loss of sales) and takt between processes.
1. BtO – Performance 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
1. BtO – Design Process objectives
Focusing on keeping production flexibleand shortening lead times by eliminatingwaste leads to best quality and lowestcost, while improving safety and morale.
TPS House is an example of correctobjectives set and process design forimplementing a BTO system.
1. Today, Tomorrow and
“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 basicprinciple 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 theright 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.
2. Just in Time
PULL SYSTEM is a material-flow control based on the replenishment of only those quantities thathave already been consumed by the next process. The “pull” comes directly from customer actualdemand.
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 levelswith actual consumption andimplement the flow.
A signal (Kanban) is sent to produce and deliver anew shipment as material is consumed
2. Pull System
• Eliminating all waste that adds cost withoutadding to value.
• Map the activities that added value to theproduct and getting rid of non value addingactivity
• Do what internal and external customerswant from the process
No waste means reducing costsand lead times
3. Waste Reduction
Total: everyone in the supply chain is involved in (including suppliers)
Quality: quality built in the process and continuos improvement
Management: enhancing quality with data and profound knowledge
No inventory means a line can not operate from in-process inventory while a production problem isfixed. 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
4. Total Quality Management
“Row, row, row”
• Takt (rhythm) comes from the rate customersare buying the product and determines the“pull” for the system.
• It is the maximum time available forproducing a product in order to correctlysatisfy the demand.
• Make one department extra efficient can buryother departments in excess inventory.Processes speed must be synchronized.
Takt is necessary for implementing a flow that does not create inventory
5. Takt
• 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.
Lean manufacturing
Test and rework
AssemblyPainted
body storePaint shop
Body-in-white
Body shop
6. Product (line) layoutComponent-related Knowledge
Cell 1 – Welding Cell 3 - Assembly
Cell 2 - Paint shop
6. Cell LayoutArchitectural-related Knowledge
• Meet the actual demand (volume and mix)• Changeover
The process ismore flexible, but more expensive
• No economies of scale• Flexible labour is required(architectural knowledge)
The material flow is significantly improved
6. Cell Layout
7. Financial Data
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11
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13
DJIAFord Motor Corp. & General Motor Corp.
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NIKKEI 225Toyota Motor Corp. & Honda Motor Corp.
source: Yahoo Finance - Historical Data
7. Financial Data
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-20
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DAX 30Volkswagen AG & Daimler AG
7. Financial Data
• RoCE = Return of Capital Employed
RoCEpre-tax = EBIT _
Long-term capital invested
-
+ Measure of efficiency
+ Values profitability
+ No biases because of taxes
- No clear benchmark
- Over-production is awarded
8. Performance Evaluation
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.001
98
9
19
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Chrysler Ford GM
Best performer: Build to Forecast
USA 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Sparkline
Chrysler 2.20 0.70 -3.80 4.50 28.00 31.80 16.60 32.50 22.40 #N/D #N/D #N/D
Ford 9.80 2.30 -3.40 -0.10 5.70 6.20 4.40 4.40 6.40 10.90 10.50 7.10
GM 8.70 -3.10 -8.50 -4.00 3.30 9.20 9.60 6.40 7.60 4.30 8.20 5.80
8. Performance Evaluation
-25.00
-15.00
-5.00
5.00
15.00
25.001
98
9
19
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19
91
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19
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20
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Honda Nissan Toyota
Best performer: Build to Forecast
JAPAN 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Sparkline
Honda 14.80 10.70 9.30 7.70 5.60 3.60 5.70 7.20 19.30 20.20 21.90 17.30
Nissan 8.50 8.50 4.00 4.60 -1.30 -2.20 -4.50 -2.30 3.30 -0.60 -0.10 -26.10
Toyota 13.10 15.80 12.20 7.20 5.30 3.90 4.30 6.20 10.00 9.60 9.30 9.20
8. Performance Evaluation
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.001
98
9
19
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91
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BMW Daimler VW Group
Best performer: Build to Order
DE 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Sparkline
BMW 16.00 16.70 15.00 10.90 5.60 7.70 7.20 8.00 10.60 8.60 8.50 11.70
Daimler 47.90 14.30 14.80 8.60 -3.50 6.50 -2.70 3.70 8.00 14.50 15.10 4.80
VW Group 10.60 7.40 8.20 1.80 -6.60 1.90 4.70 8.30 15.10 19.50 14.00 19.70
8. Performance Evaluation
9. Market Segmentation
BtF
Chrysler
12.8%
Large family cars, SUV, MUV
Ford
5.5%
Fleet, Small and Large cars
GM
4.3%
Fleet, Small and Large cars
9. Market Segmentation
BtO
Toyota
8.8%
Small, Large car,
MUV, SUV
Nissan
-0.5%
Small, Large, Family cars
BtF
Honda
12.8%
Small, Large car,
MUV, SUV
9. Market Segmentation
BtO
Daimler
10.1%
Executive, sport cars
BMW
10.1%
Executive, sports cars
BtF
VW Group
9.2%
Small, Large, Family cars, executive
9. Market Segmentation
•Target the correct market segmentation
• Design the process to achieve perf. objectives
OperationsMarketing
STRATEGY Mass market
Small and fragmented
Medium-high market
Customise your own car !
COST: 9,795 £DELIVERY: NowCOMFROT: Power steering, electric mirrors and electric front window
COST:DELIVERY:
COMFROT:
10. Choose your car
Can they work together?
“How do you pronounce DaimlerChrysler?…
‘Daimler’—the ‘Chrysler’ is silent.”
11.
• Matthias Holweg and Frits K. Pil, The Second Century: ReconnectingCustomer and Value Chain through Build-to-Order, The MITPress, 2005 (Chapter 1,2 and 3)
• Jeffrey K. Liker, The Toyota Way, McGraw-Hill, 2004 (Part One and TwoSection I and II)
• Froud, Haslam, Johal, Williams, Cars after financialisation: a casestudy in financial under-performance, constraints andconsequences, Competition and change, 2002
• “Build-to-order, Lean manufacturing, Just-in-Time, TQM and Cellularmanufacturing”, Wikipedia
References
