Make to Order Manufacturing in Indian Context: A Case Based Study

                                                                

Introduction

With market environments becoming increasingly competitive, the classical manufacturing approaches are beginning to overlap in many industries. For example, an industry traditionally operating on MTO(Make to Order) producing High Variety Low Volume items may shift towards standardization to reduce lead times and hence gain an edge. Conversely, an industry traditionally operating on MTS(Make to Stock) producing Low Variety High Volume items may shift towards increasing variety and customization.

Understanding MTO systems

MTO systems are characterised by the entire production-in house or vendors- takes place after the customer order has been received. They are preferred to cater a great variety to customers, or make unique products for customers. Some industries that typically adopt MTO systems are:

1.      Machine tool industry

2.      Earth moving equipment/heavy construction equipment

3.      Heavy machinery industry

4.      Sections of the automobile and tractor industry

5.      Electrical equipment industry

The volume-variety combination of the product does play an important role in determining the sustainability of the system.

General Features of MTO industries

1.      Low Finished Goods Inventory

2.      Labour Specificity

3.      High Lead Time

4.      Functional Shop Layout

5.      Mixed Vertical Integration

6.      Planning and Execution Tools

7.      Difficulty of bench marking

Case study of an Indian Component Manufacturer “A”:

Background:

‘A’ is a machined component manufacturer in central India, producing over 300 different varieties of gears and shafts to be used in farm equipment, commercial vehicles, and passengers. The lead ties for producing these items could range from a week to a month, a normalized item type representing the entire range would have an average production lead time of about 15 days.

Demand Management System:

The Sales and Marketing(S&M) team is the main source of demand information for the factory. Once the customer demand is either obtained or translated into exact demands for each variety of gears and shafts, this information is then passed on to the factory. Though the products are of medium-high variety, the fluctuations in factory demand are largely smoothened by the S&M team. This allows ‘A’ to avoid maintaining stocks of any of its products, and follow an essentially MTO manufacturing approach.

Order Fulfilment Process:

 A typical order fulfilment process flow for such products is diagrammed below:

 

Fig. 1: Process Flow Diagram for Gear/Shaft Manufacturing

·         Forged blanks, the main raw material for gears and shafts, are procured from external suppliers

·         These blanks are then sent to another supplier to perform the turning operations.

·         On receipt of the turned blanks, the machining operations of hobbing, shaving, deburring, profile grinding and heat treatment in that sequence are performed on the parts. One of these, GC(a Gear Cutting operation), is considered to be the bottleneck operation in the entire process.

·         Once through heat treatment, the finished product comes out of the manufacturing process, and is then despatched out in lots to the respective customers.

Problems observed:

The factory however started facing some challenges a few years into its course of operations.

1.    WIP inventory of the factory was increasing.

2.    The Delivery dependability of the factory had declined significantly

3.    The overall factory effectiveness was only 50-60%

Overall Equipment Effectiveness=Availability*Performance*Quality.

The corresponding value for the best gear manufacturing firms in the industry for the best gear manufacturing firms in the industry was 75%, so the effectiveness was definitely below par, and indicated possible problems with one or more of these constituent factors.

Analysis and Insights

The analysis of three situation yielded some interesting insights and guidelines for managing such scenarios:

·       Around 70-75% of the customer orders (by volume) taken up by the SM team were ‘GC intensive’. The revenue differential between the GC (Gear Cutting) and non-GC orders was 5-10%, and the orders were prioritised based on the total revenue generated. Thus the orders which formed the top 10-20% of the order book, when sorted as per ‘Revenue per GC hour’ formed the bottom 10-20%. Thus though the factory had a capacity utilisation of ~80%, the actual output capacity was only ~50-60%, which explained the observed efficiency problem.

·       ‘Critical’ and ‘Rush’ orders further aggravated the situation. To accommodate these orders, some current orders were removed from the production cycle and the new orders were taken up, which resulted in a huge rise in the WIP inventory. The shop floor was also experiencing frequent machine breakdowns. This explains the inventory and delivery dependability problems. In fact, preventive maintenance is a very important activity for such sectors which are highly machine intensive, and whose operations require high reliability.

·       The customer orders need to be well balanced in terms of the operating machine hours. This requires a co-ordination between the SM and Production teams before taking up any major order. Basically a trade-off needs to be achieved between the gain in revenue/machine hour and the loss of customer delivery dependability, which if not addressed could seriously affect the company’s market position

Learnings and Inferences

Observation	Inference	Academic Basis
There was a capacity constraint at the GC operation	The typical constrained resource is the machine hours at a particular operation	Constraint Based Planning & Scheduling(The Goal)
Hence the evaluation metric was Revenue /GC hour	Hence the SM team must evaluate each other’s acceptance with respect to its ‘Revenue generated per constraint machine hour’. Order scheduling on the shop floor also needs to be done based on this metric	Under the “Manufacturing Marketing Interface” in Sharma et al 2005

The case falls in the category of high variety- high volume category. It offers a moderate range of product and product design. The link between the manufacturing and marketing departments plays an important role in deciding the workability of MTO system.

Reference:
Udyog Pragati 2012 

By
Satya Swarup 
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