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2—
Manufacturing:
Context, Content, and History

The Economics Of Manufacturing

The economics of manufacturing is driven by the desire to produce salable finished products at as low a cost as possible while still maintaining acceptable standards of quality, functionality, and timeliness. Figure 2.1 describes in broad strokes the relationship between unit cost and production volume for three paradigms of production: manual, mass, and flexible. Flexible production has been the focus of recent efforts to apply information technology (IT) to manufacturing.

Manual production. In manual production, the cost of producing an item is to first order independent of the production volume, since the dominant cost of production is the worker's time in producing the item.

Mass production. In mass production, a substantial amount of capital is invested in a production line. However, once the facility has been built, the incremental cost of producing an additional unit is that of materials and labor, which is small compared to the initial cost of the facility. When the production facility is fully utilized, unit cost is minimized. However, such facilities by assumption produce a single product, require long lead times to deploy, and tie up large amounts of capital.

Flexible production. Flexible production is still a goal rather than a paradigm. If successful, flexible production lowers both the capital and the time required to deploy a factory for a new product. Indeed, for certain types of products (e.g., integrated circuit chips, books) a "new" production facility is



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Page 49 2— Manufacturing: Context, Content, and History The Economics Of Manufacturing The economics of manufacturing is driven by the desire to produce salable finished products at as low a cost as possible while still maintaining acceptable standards of quality, functionality, and timeliness. Figure 2.1 describes in broad strokes the relationship between unit cost and production volume for three paradigms of production: manual, mass, and flexible. Flexible production has been the focus of recent efforts to apply information technology (IT) to manufacturing. • Manual production. In manual production, the cost of producing an item is to first order independent of the production volume, since the dominant cost of production is the worker's time in producing the item. • Mass production. In mass production, a substantial amount of capital is invested in a production line. However, once the facility has been built, the incremental cost of producing an additional unit is that of materials and labor, which is small compared to the initial cost of the facility. When the production facility is fully utilized, unit cost is minimized. However, such facilities by assumption produce a single product, require long lead times to deploy, and tie up large amounts of capital. • Flexible production. Flexible production is still a goal rather than a paradigm. If successful, flexible production lowers both the capital and the time required to deploy a factory for a new product. Indeed, for certain types of products (e.g., integrated circuit chips, books) a "new" production facility is

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Page 50 FIGURE 2.1 Unit cost versus production volume per year. Solid line, manual production; dashed line, mass production; dotted line, flexible production.   obtained from an "old" facility simply by making changes to the software that controls the production processes. As Figure 2.1 suggests, manual production is superior to other types of production for those cases in which a highly customized product is needed in small volume and for which the nonmanual production of the product in a factory would require an expensive facility. When sufficiently large numbers of identical products are needed, mass production is generally superior. But the flexible production paradigm seems the most economical for intermediate quantities of moderately customized products that are needed in a timely manner. The Nature Of Manufacturing Manufacturing can be divided into two types—discrete and continuous. Continuous manufacturing refers to the production of substances or materials (e.g., the manufacture of chemical products). In continuous manufacturing, plant operations are reasonably represented by the well-understood mathematical formalism of differential equations. However, discrete manufacturing (e.g., the manufacturing of cars, airplanes, and other assembled products) is altogether different. Discrete manufacturing cannot be well represented by any known formalism.

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Page 51 For example, there is today no design formalism that automatically allows only a certain class of objects to be attached to another object (so that a handle but not a fork can be attached to a cup), although work on feature-based and constraint-based design tools is attempting to address this problem. The result is that predicting the operation of a discrete manufacturing plant is quite difficult and may be tractable only through the use of simulation models. The focus of this report is primarily discrete manufacturing. Discrete manufacturing involves making discrete objects and is often based on actions such as shaping and assembly. The final product intended for the end user may be a desktop computer, a car, or a chair. But except in the simplest instances, the factory does not convert raw materials (e.g., sand, iron ore, wool) into a final product in one step. Instead, the final product is most often fabricated from components.1 Each component is often itself the result of an assembly of subcomponents, and the number of steps between elemental raw materials and final product may be large indeed. Each component or subcomponent may be produced in-house or obtained from another supplier. Thus, in a sense, the "final product" of component suppliers may well be components for an assembler of end-user products. Another type of final product is created through the deposition of materials, in which a product is created by the selective layer-by-layer deposition of material on some substrate: both books and integrated circuit chips are created in this manner. Deposition-based production is also often used to create prototypes or product shells. It is helpful to abstract manufacturing into four basic elements of an idealized process: product design, process design, shop floor production, and business practices: • Product design normally begins with a combined effort by people who create new technology and people who meet customers to find out what customers need or want and what technology is available or feasible to meet those needs; this aspect of product design is often called conceptual design. In some cases, demand "pulls" and (less often) technology "pushes." What emerges is a high-level product model that usually contains a nontechnical statement of performance (e.g., provide instant communication with a distant computer) together with some quantitative goals (e.g., weigh less than 100 grams, communicate with a computer 300 meters distant). Once a product's functionality is determined at this high level of abstraction, detailed design is undertaken to convert requirements into successively more detailed designs that anticipate or include, at each stage of the design process, the 1 Fabrication is used here in a somewhat loose sense to denote both the mechanical connection of elements (assembly) or the conditioning of a component by the removal or treatment of some material, such as drilling a hole (shaping) or heat-treating (conditioning) a component.

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Page 52 implications for manufacturing methods, sales techniques, customer interactions, reliability and cost targets, field repair, safety, and environmental impact. As the product concept is refined, a variety of specifics may be added to the model, such as geometric details, materials or electrical specifications, and tolerances. Stylists, designers, and engineers make sketches, layouts, system diagrams, flow charts, and physical models as they try to define physically a specific product that will meet the stated requirements. Components and materials may be considered and rejected (because, for example, they weigh too much) several times before a promising solution is found. Cost, performance, and reliability must be predicted with increasing accuracy, as must potential manufacturing or use problems. Conceptual design and detailed design interact. While it is clearly absurd to undertake detailed design before a designer has any idea of what the product is to do, feedback from detailed design may well influence the next iteration of the conceptual design. A key element of design is verification. Verification activities test portions of a product design with prototypes or computational simulations, and test key portions of the overall fabrication process to ensure that cost, functionality, safety, and reliability requirements are met. Computer simulations allow the exploration of large numbers of test cases, but only actual physical testing can account for factors that cannot be adequately simulated; such factors range from small details (e.g., fatigue cracks) to major omissions (e.g., fundamental design flaws). Verification generates test results that can be used to improve product and process performance or quality. The output from the product design activity is a model that describes the product with sufficient specificity and lack of ambiguity that it can be produced with a high degree of conformance to its specifications. • Process design refers to the determination of an appropriate sequence of individual fabrication and assembly steps for converting raw materials and/or parts into a finished product. Process design is driven by a product's specifications and the processes available to produce the product. Process designers must find or create equipment and process plans (perhaps to be executed by others outside the factory) that will make and assemble parts into working products.2 Process designers must ensure that each process step can be performed economically, accurately, and at the necessary speed. They must also ensure that the collection of steps, when executed, will result in a smoothly running factory. The output of this stage of manufacturing is a set of process designs that are compatible with the product design. 2 The extent to which a process designer must develop a new production process for a new product depends strongly on the nature of the product being produced. As a rule, mechanical items require a greater amount of customized process design than do electronic items such as integrated circuit chips, for which manufacturing is mostly pattern-insensitive (see also Chapter 3, footnote 3).

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Page 53 • Integrated product and process design. Increasingly, product and process design are linked in an integrated effort. Although the steps above are described as though they take place sequentially, an integrated product and process design effort calls for them to be undertaken concurrently. Product design and process design interact through small feedback loops (whereby a change to a detailed product design may be made to simplify the process of making the product) and through large feedback loops (whereby feedback from customers may identify product design errors or ways in which process or product design can be improved). Such feedback loops are essential for uncovering incorrect designs or supporting data, incorrect assumptions about customers and their needs, incomplete specifications to suppliers, and inadequate tracking of performance in people or machines. • Production implements the processes specified by the process designer. A qualified production facility ensures that these processes are capable of producing a product in sufficient quantity and of acceptable quality in a timely manner and within budget as often as needed. Moreover, qualification demands both technical assurances (e.g., that six-sigma defect rates3 will be met for final products) and nontechnical assurances (e.g., that a supplier organization has sufficient financial staying power to guarantee a supply for a certain long period of time). Often working with the process designer, the production engineer makes decisions such as whether to make or buy a given part or process, what factors qualify a supplier, and how to manage engineering changes. In general, a production facility must provide for the receipt and acknowledgment of orders, the acquisition of materials, the performance of shop floor operations,4 and the generation of the information needed to support continuous improvement. A significant amount of real-time planning and scheduling is necessary to supervise those activities taking place on the shop floor. In addition, the production environment itself is complex and dynamic: machines break, resources such as parts or people are not always available, processing capability varies, communication falters, people with unique skills get sick or leave the company, and customer demands change. Consequently, the production facility must adapt by detecting changes, modifying intermediate goals, making trade-offs among conflicting goals, resolving constraints, and executing actions in a timely fashion. The production function also includes planning for machine requirements and resource capacity, systems management, and control. Production engineers must consider plant design, as well as identify inconsistencies and anomalies in the work contributed by product and process designers. 3 Six-sigma defect rates correspond to a defect rate below 3 in 1 million. 4 Equipment on the shop floor for discrete products performs two types of action: individual machines or work cells fabricate or assemble partially finished parts or subassemblies, and transfer systems move the output to the next machine or cell.

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Page 54 • Business practices are the aspects of manufacturing that go beyond the production activities occurring on the shop floor (the "touch labor" activities) and their real-time supervision. Business practices include marketing, designing and providing production facilities and equipment, managing materials and resources, procurement, contracts administration, financial accounting, and order taking. External suppliers must be found and their material and supply streams integrated into manufacturing operations for equipment or product components or materials that are not built or produced in-house. Planners must muster the capital to provide the necessary capacity to meet the anticipated demand for a product. Thus, manufacturing businesses care about the cost, quality, and schedule of all relevant processes, not just those related to what is traditionally associated with production (e.g., shop floor scheduling, machine utilization and control, and so on). The steps within each element are not independent. For example, within product design, the specification of an object's geometry may be related to its functionality. Within process design, the particulars of how iron ore is converted to steel may affect how the steel is machined or shaped later. Within production, the placement of a particular piece of fabrication equipment may affect the speed with which a product flows through a facility. Rates of equipment utilization can be kept higher (tending to reduce costs) by a willingness to accept higher levels of inventory (tending to increase costs). Within business practices, suppliers must be chosen carefully to ensure that they deliver on time supplies that meet the required performance specifications. Orders must be processed accurately and converted quickly into work orders, schedules, materials purchases, and personnel assignments. So also are the various elements of manufacturing interdependent (see cover illustration). Product design and business practices intersect in the market for products, the sources of finance, and the suppliers of components and equipment. Product design and process design appropriately linked constitute design for manufacturability,5 while process design realized successfully in production is manifested as process excellence. Production capabilities significantly influence what product designers can create (although Box 2.1 illustrates another influence on product design). Finally, enabling and driving production tasks and business practices is the appropriate use of physical, human, and financial resources. The manufacturing philosophy of concurrent engineering is based on the interaction of all these elements; the manufacturing "wheel" depicted on the cover of this report is intended to suggest the integration of manufacturing activities both 5 Indeed, today's product designers must concern themselves with a wide range of concerns that did not affect those of yesterday; these include product designs that facilitate manufacturability, assembly, repair, maintenance, recyclability, affordability, and so on.

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Page 55 Box 2.1 The Relationship Between Product Design and Implementing Technology A design engineer's choices about product design are necessarily constrained by the technologies available to implement those designs. Of course, implementing technologies include shaping and cutting tools and their capabilities for removing precisely controlled amounts of material. But a product also embodies technologies (e.g., the materials used in its construction, the technologies used to control its operation). When these change, the engineer's design options change—it is clearly a different design matter to build a glider out of wood rather than metal or plastic composites. The technologies that control the operation and behavior of a final product are also crucial. In recent years, design options have been expanded by increasing capabilities to substitute electronic components for mechanical ones. Watchmaking is a good example. Fifty years ago, time-keeping accuracy was a direct function of the mechanical sophistication of a watch and the skill with which its components were fabricated, and high accuracy came only at great cost. Today, electronic chips and liquid crystal displays enable comparably accurate timekeeping at a tenth or a hundredth the cost of watches 50 years ago. Similarly, traditional mechanical fuel distribution in automobiles has been replaced by microprocessor-driven electronic fuel injection and ignitions, which have led to lower emissions, better fuel economy, lower maintenance, and lower-cost manufacturing. An extreme case is illustrated in production processes that are based on the deposition and removal of material; both integrated circuit chips and books are produced through such processes. In contrast to a more traditional production paradigm in which raw materials are fashioned into parts and then assembled into products, fabrication by material deposition requires many fewer intermediate steps that are qualitatively distinct—repetition of the same process (with different parameters) is sufficient to manufacture the product. Those designing products to be produced in such a manner can generally operate with much more freedom in their work than those designing within a more traditional paradigm in which the fabrication of intermediate components constrains the design options. Another example is the use of sensors incorporated into finished products. It is expected that sensors will be embedded into aircraft wing skins (for dynamic analysis and control of the aircraft), engine shafts (for torque readings), engine die castings (for thermal and strain information), structure members (for load and corrosion information), and tubing (for information on pressure, temperature, or electromagnetic radiation). Sensor-loaded products may be able to indicate where they are, how they are being used, when they have been damaged, or when they fail to meet a specified parameter. They may be able to monitor their environmental impact and signal for containment or destruction. Sensors may even enable a product to undergo "dynamic remanufacturing" even as it is being used. Alloys with "memory" are a crude example of a sensor-loaded product; Nitanol is an alloy that "remembers" its original shape when it is subjected to temperatures in excess of a certain critical value, and a deformed Nitanol structure will tend to revert to its original configuration upon heating. A more active example is provided by recent work at the Xerox Palo Alto Research Center on active control of structural elements. Work there has demonstrated that by using a sensor and a computer to sense and compensate for initial deflections in a support column subject to buckling stresses, the strength of the column can be increased by a factor of 4 with a negligible increase in weight.

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Page 56 among the four basic elements of manufacturing (the four spokes of the wheel) and across these elements (between the spokes). In contrast to traditional product development, which involved little communication between the various elements of manufacturing, concurrent engineering emphasizes improved communication and early consideration of "downstream" issues such as the relationship of product repairability by the end user to the ease of assembling the product. Concurrent engineering stresses more or less simultaneous consideration of product and process design, customer needs, and business practices in order to speed the development process and avoid costly errors or redesigns. The Historical Context of Manufacturing Change is ever present in manufacturing. New technologies brought to the marketplace in the form of products and capabilities become part of the platform that manufacturers use to create the next generation of products. New economic conditions, new knowledge about how to organize manufacturing effort, new consumer preferences, and new manufacturing techniques constantly alter the manufacturing front. In a few decades, manufacturing has undergone a major change with respect to the environment in which it operates, the methods through which it conducts business, and the technologies that support it. Early Paradigm Changes Manufacturing has undergone many paradigm shifts from the Bronze and Iron Ages to today's technology, but the change has been especially apparent in the last few hundred years, affecting the way manufacturing was performed, the processes used, the products made, and the economic power of the locale in which manufacturing was taking place.6 These paradigm shifts have ranged from Eli Whitney's invention of interchangeable parts to the invention of numerically controlled machine tools. In each case the paradigm shift has resulted in an increase in productivity of about a factor of 3 beyond the old method (Figure 2.2). In the earliest paradigm, the transformation from raw material or subassemblies into a more valuable final product was carried out by skilled artisans and craftspersons, people who practiced under expert supervision until they achieved proficiency. These experts performed the entire task of transformation, from raw material to final assembly and test, mostly by hand. An area's economic wealth depended on the skills of local artisans and craftspersons, and world fame accrued to specific areas that manufactured specific goods. London, Imari, Leeds, Birmingham, and other artisan centers achieved world renown. 6 A more comprehensive, engineering-oriented examination of manufacturing epochs can be found in a table on the evolution of manufacturing in Jaikumar (1988).

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Page 57 FIGURE 2.2 Productivity follows paradigm shifts. The solid line in this figure from Jaikumar (1988) illustrates how each paradigm shift has resulted in greater manufacturing productivity. The dotted line was added by the committee to suggest that the increasing use of information technology (IT) to integrate manufacturing activities may have an impact comparable to those of previous changes in manufacturing. SPC, statistical process control; NC, numerical control; CIM, computer-integrated manufacturing. During the Industrial Revolution, when steam power became readily available, economic wealth shifted to locations that had inexpensive access to power sources such as coal, oil, and hydroelectric power; to raw materials such as iron, aluminum, and copper; or to low-cost transportation via rivers or seaports. Economic wealth was determined largely by the capital equipment available to transform raw materials into finished goods. Pittsburgh, Gary, the Ruhr Valley, and other smokestack areas became centers of the new manufacturing capabilities. The latter part of the Industrial Revolution introduced mass production methodology, changing the nature of work from a "do it all" process to a specialization process. Specialists now performed repetitive tasks in one specific activity, substantially decreasing the cost of the finished product. Interchangeability of parts became critical, but knowledge about how the entire product came together decreased. Detroit, Wolfsberg, Osaka, and other cities became centers of mass production. One effect of these paradigm shifts, as shown in Figure 2.3, is that employment in the United States in the manufacturing sector has dropped drastically even as the value of goods shipped has remained relatively constant as a percentage of gross national product. The next major paradigm shift occurred after capital, manufacturing technology, and access to raw materials became widely available and no longer represented competitive advantages; U.S. manufacturers faced greater, worldwide

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Page 58 FIGURE 2.3 Manufacturing over time—relationship between U.S. manufacturing jobs and manufacturing output, 1950 to 1990. GDP, gross domestic product. Courtesy of Bureau of Labor Statistics. competition. Various approaches to reducing costs and improving delivery were undertaken, with significant attention being paid to industrial engineering. Knowledge became important, as did quality control, time studies of manufacturing processes, flexible organization, skilled workers, and so on. The availability of an educated work force became a driver of economic wealth. Silicon Valley, Los Angeles, Seattle, Tokyo, Route 128, and others became the new centers of excellence. Recent Changes and Their Effects From the U.S. perspective, perhaps the single most profound change in the manufacturing environment in the recent past has been the emergence of a competitive worldwide market in sophisticated manufactured products as other nations have capitalized on advantages not available to the United States (e.g.,

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Page 59 inexpensive yet highly educated labor, cheap capital). In the early stages of this evolution, quality disciplines and process control methodologies became competitive weapons. Japan, with its national quality programs and intense focus on quality, was the first country to use this strategy widely, but others have followed suit. The global pursuit of quality has evolved to the point that quality, in itself, no longer confers a significant advantage: it is simply taken as a ''given" by consumers everywhere. Product quality, more rapid delivery, better asset control and utilization, and the ability to execute more complex manufacturing tasks and build increasingly complex products have come to characterize excellent manufacturers. Manufacturers are now linked directly to their suppliers and customers. Many retailers collect worldwide sales data every day and modify their suppliers' schedules in response. Products are designed to suit regional styles and needs, even if they are made in other regions. International payments are made in a variety of currencies as materials are purchased, labor is obtained, ships are laden, and products are transhipped. These business and marketing issues are not usually associated with the more technical concerns of manufacturing, but in fact they are central to its success and enlarge the very definition of manufacturing. Most importantly, they are very information-intensive. Without information-driven links to financial markets, logistics services, and market knowledge, manufacturing businesses would operate in a vacuum or seek blindly to force their output on unwilling customers and ultimately fail.