production 1 engle za

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Level II

A Study of Production Management(Manufacture)

By

Angela Lee

University of Salford

Research Unit

January 1999


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Process Protocol II Angela Lee, January 1999.

2

1.Introduction.

The economic success of a manufacturing firm depends upon their ability to identify

the needs of its customers, to quickly create the subsequent products and to produce

them at a low cost. Achieving these goals is not solely a marketing, a design or a

manufacturing problem, but rather a management problem involving all of thesefunctions.

Production Management involves the planning, organising and controlling of the

whole production process. The interrelation of these activities and operations involved

in producing the goods and the services is called a production system. Figure 1

illustrates a schematic diagram of a production system with its six principal

components, and success is a direct result of the efficient control of these components

[Evans, 1993].

Figure 1: Model of a production system [Evans, 1993]:

This study aims to explain the principles behind current manufacturing philosophies,

in particular Materials Requirement Planning (MRP), Just-In-Time (JIT) and

Optimised Production Technology (OPT). These philosophies aim to improve the

production system in distinctive ways, each placing an emphasis upon different

components.

2. Materials Requirements Planning (MRP).

In manufacturing situations, the demand for raw materials, components,

subassemblies etc is dependent upon the production plan for the final product. It is

therefore possible to determine how many parts or components will be needed in each

time period once the production requirements for the final product is established.

MRP is a computerised system that exploits this information of the dependence on

demand, by managing inventories and controlling the production lot-sizes of the

numerous parts that go into the making of the final product.

MRP is the most widely used production management system in the UK [Sapoutzis,

1995], and is more commonly regarded as a push system. It is simply a method ofprojecting the requirements of the individual components of a product to determine

Inputs:

- Materials.- Capital.- Equipment.- Personnel.- Information.- Energy.

Conversion/creation

processes:

- Manufacturingoperations.

- Serviceoperations.

Outputs:

- Finishedgoods andservices.Suppliers

Managers

Customers

Decisions.

Feedback.


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three major functions: control of inventory levels, assignment of priorities for

components and the determination of capacity requirements [Buffa et al, 1987].

Therefore, the calculations performed by MRP, plan order releases for purchased

parts and manufactured components. In this fashion, MRP assists operation managers

in planning and controlling inventories by answering the basic questions of what to

order, how much to order, when to order and when the delivery should be scheduled.This is achieved by looking at future requirements for the finished products and it

uses this, and other information, to produce statements on sub-assemblies,

components and raw materials necessary to complete the end products. In short, the

system determines the requirements and schedule for (1) manufacturing the

components and subassemblies and or, (2) purchasing the materials needed for

meeting the requirements of the master production schedule. The term push

describes the fact that the statements of requirements are made according with the

agreed delivery dates and these are set at the start of the process, as to meet relevant

schedules [Hill, 1991]. In this way, the appropriate components are pushed into the

process as to produce the right quantities, and more importantly, at the right time.

2.1 Aims.

Delmar [1985] describes that there are three main goals in MRP as:

1) Minimise inventory investment.2) Maximise the efficiency of the production system.3) Improve customer service.In order to minimise the investment in inventories (an idle resource that is waiting to

be used) the correct resources should be ordered as and when required by the product

specification. Furthermore, the right quantities must be ordered, to meet the

production schedules, taking into account trade-offs between the order of quantity and

total unit costs. This will result in a reduction of holding costs and so the efficiency of

the production system will improve, and hence, customer satisfaction will flourish too

because time and cost will be greatly reduced.

The above should be carried out by the production planning department. Careful

planning of the production system is required to improve efficiency. Such planning

should first look at the available resources and capacity to determine the production

schedules. The overall managerial objective in using MRP is to avoid inventory stock-

outs so that production runs smoothly, according to plans, and to reduce investment inraw materials [Buffa & Sarin, 1987].

2.2 Benefits.

The benefits of an MRP system are obvious. The only feasible option is to have a

computerised system in play when dealing with large numbers such as in a

manufacturing industry [Buffa & Sarin, 1987]. This is clearly evident if the schedule

changes due to market shifts. A computerised MRP system can immediately reflect

the effects of changed order quantities, cancellations, delayed material deliveries and

so on. In addition, a manager can change the master schedule and quickly see the

effects on capacity, inventory status, or the ability of the system to meet the promiseto their customers.


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Details of inputs and outputs of an MRP system [Hill, 1991]:

2.2 Manufacture Resource Planning (MRP II).

After the development of the MRP system, it became evident that its concept had far

more potential than merely for the planning of materials. As such, managers began to

expand the concept to include other manufacturing resources allocated to production,

particularly financial resources.

MRP II adopts similar procedures as MRP. It is an integrated software tool for

managing, predicting and controlling a companys resources and investments [Evans,

1993]. Since materials and production requirements can be determined by MRP, these

requirements can in turn be converted to pounds. In this way, inventory, labour,

materials etc can be costed, this standpoint is typical and favoured in the

manufacturing industry. Consequently, the production and finance teams should work

together to ensure that the desired resources are made available to meet the production

MRP SYSTEM.

Explodes BOM per MPS to give

gross inventory requirements, nets

out inventory levels and issues the

outputs below;

Master Production Schedule(MPS)

Details, quantities and product

types to be provided in each time

period in the future.

Forecasts Known orders

Production capacity manpower and

equipment availability.

Inventory status records.

Contains inventory balances, free-

stock positions, on-order details,lot-sizes, lead-times and safety

stocks.

Product structure records.

Contains bills of materials (BOM)

and how each product is produced

(the routing file).

In ut

In utIn ut

Materials and capacity plans.

Planning adequate capacity and

materials in line withrequirements while responding to

under and over provision.

Planned order releases.

For purchasing and shop

scheduling giving quantity of

items that must be available in

each time period.

Purchase orders.

Quantity and time period for

orders to be placed with suppliers.

Work orders.

Quantity and time periods for

work orders to be released to the

shop.

Reschedule notices.

Details of any replanning andrescheduling due to unforeseen

problems.

Outputs


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requirements for the final products. MRP II also facilitates co-ordination with

marketing, which is usually lacking in other systems. The production planner and the

marketing product manager can liase to determine the effect of the changing market

demand on production, and can include expediting or the postponement of some

orders.

MRP II, therefore, provides a convenient vehicle for co-ordinating the efforts of the

manufacturing, finance, marketing, engineering and personnel departments. It

converts a marketing statement of demand into a workable production plan. Since it is

too computerised, mangers can predict the implications of changes. For example, if

the sales forecasts provided by marketing cannot be met with existing capacities, the

financial and other implications, can be evaluated using the stimulation capabilities of

the system.

Structure of MRP computer programs [Browne et al, 1988]:

3. Just-In-Time (JIT).

Efficiency, in manufacturing terms, is the ratio of output to input. The output of

product per hour of production is production efficiency, or productivity. Anything that

delays production, interrupts material flow or does not contribute to production,

lowers efficiency. Anything that lowers efficiency is waste.

JIT is a philosophy. A philosophy that is considered as a pull system, whose main

objective is to eliminate waste in all possible forms including unnecessary inventory,

scrap in production and any wasteful activities in order to reduce costs and improve

quality. It is important here to note that outside Japan JIT is also known as lean

production [Anderson, 1994]. Since its success in helping Japan become a major

manufacturing power [Plossl, 1987; Evans, 1993; Buffa & Sarin, 1987], it has become

Master production

scheduling.

Rough cut capacity

planning.

Materials requirements

planning.

Capacity requirements

planning.

Production planning. Resource requirements

planning.

Production activity control

Dispatching. Input/output

control.

Inventory control.

Purchasing.

BOM control.

Demandmanagement.

Forecasts.

Customer orders.


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the aim of many western manufacturing companies and has been implemented by

many but with varying degrees of success.

The philosophy aims to continuously improve all areas of the manufacturing process,

from design to production, and from supplier related aspects to customer related

aspects [Buffa & Sarin, 1987]. Moreover, to satisfy the customer by supplying whatthey need and when they need it, hence remaining competitive and thus profitable, to

produce the right product or part, at the right quantity and the right time [McMahon &

Browne, 1993]. To achieve this ultimate target of excellence in all areas, the

following principles should be religiously adhered to [Browne et al, 1988]:

Zero defects: Under the JIT philosophy mistakes are not inevitable and suchmistakes are recognised under its principles. However, every mistake and

defective product is a reason to look at the whole production process more closely

to find out why it is not foolproof. By investigating every defect and its cause, the

process can gradually be improved, and hence get closer to being perfect.

Zero set-up times: The reduction of set-up times will lead to significant reductionsin the level of inventory. This in turn improves the production process for two

reasons; 1) inventory need not accumulate at work stations into huge lots only to

be transferred later onto other work stations and; 2) with quick changeovers

production becomes flexible, it can be scheduled to match varying demand for

different product mix. Therefore, long and expensive set-ups will not dictate the

production runs.

Zero inventories: By reducing inventory, production is able to respond effectivelyto short term variations in market demands. Consequently, highly competent JIT

plants are able to assemble in a ratio of 1:1, or rather if two different models of a

product are being made then they can be assembled alternating from one to theother. The main advantage with a mixed-modelled assembly is that each day the

amount of products made is close to the amount of products sold that day. This in

turn avoids the usual cycle of a build-up in inventory of a given model, followed

by depletion to the point of lost sales when the next model builds up. Also, by

reducing the inventory investment, lower expenditures for facilities, equipment

and labour is also realised. Therefore, leading to a better quality product, less

wasted material, fewer labour hours on rework, and hence higher productivity.

Zero handling: The layout of the production process is laid out in an economicalmanner, a product-based layout, as to introduce a reduction in queue time.

Zero breakdowns: Machine maintenance is taken very seriously in JIT.Preventative maintenance is the key to make sure that machines do not breakdown. Machines are consequently programmed to operate below their full

capacity so that there is time to maintain the equipment and more importantly, and

to reduce the unnecessary wear and tear that is more common to machines that

continuously run at full speed. What the companies loose in production time, they

more than make up in reduced machine breakdowns, lower yields and less re-

work.

Zero lead-time (the time between the placing of an order and its receipt in theinventory system): To achieve very low inventories and very small batch sizes, the

lead-time for the manufacture of a product has to be greatly reduced. Long

planning lead times which are characteristics of traditional planning systems

(MRP) are based on the longest cumulative lead-time. These long lead times force


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the manufacturing system to rely on forecasts and to commit to manufacture a

product before the, and in anticipation, of customer order.

With JIT, items are delivered or produced only when they are required, to produce a

smooth and rapid flow of products from the time the materials are purchased and

received, until the time the final product is shipped to the customer. Therefore,inventories are minimised. Ideally, the number of parts produced in a plant or

purchased from outside suppliers at any one time should be just enough to produce

one unit of the final product. This procedure is supported by means of a kanban

system.

3.1 Kanban:

The way that materials and products are moving from workstation to workstation

within a JIT environment is governed by the kanban system of shop floor control. The

kanban (Japanese for record card) looks at the manufacturing process from the

perspective of the finished item. The technique controls the initiation of productionand the flow of material with the aim of getting the right quantity of the right items

where they are needed at the time they are needed. JIT is described as a pull system,

or a demand feeding process, in the sense that the material is being pulled through the

system, starting from the last operation on the line demanding something from the

preceding operation, and so on until the supplier is reached. Such a supplier is

expected to be able to supply in small batches several times a day as and when

material is required.

The simple kanban system of inventory control is an integral part of the JIT system of

production. The beauty of it is in its simplicity. A kanban can be a card of two types: a

withdrawal or a production ordering kanban. The withdrawal kanban shows the

quantity of the items that the subsequent process should withdrawal from the

preceding one. The production ordering kanban shows the quantity that the preceding

process should produce. These cards are used within the plant and within suppliers

plants, hence ordering and delivering can be co-ordinated as to reduce inventories.

3.2 Process/teamwork.

The JIT strategy enlists everyone being involved in productivity improvement. It

recognises that maximum productivity depends upon maximising assets, and human

resource is a companys most important asset [Ulrich & Eppinger, 1995]. Therefore,this strategy attempts to release the latent capacity of each employee to attack

productivity. All personnel are expected to contribute to improving product quality,

reducing lead times and eliminating waste.

Teamwork is the answer. In a manufacturing environment, one persons problem is in

turn everybodys problem. For example, when an operator discovers a problem with

his/her machine, or sees something wrong anywhere in the factory, they have the right

to stop the whole production line if necessary, unlike that of other factories where

only the manager possesses this power. Then everyone will then leave their positions

and try to help solve the problem. As a consequence, each individuals skills are

harnessed to improve the whole production system and so the process is continuouslyimproved, little by little. Consequently, the emphasis in the entire manufacturing plant


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shifts from detecting problems to solving them. Moreover, finding problems are easy

but it is fixing them that are difficult. Solutions for JIT are solutions that improve the

whole. Problems are not solved in one department only to create new problems

elsewhere. The whole organisation is enlisted on solving problems and it is an

unrelenting situation because new and different problems always occur.

However, not only are the operators involved in the whole production process, the

suppliers and even the customers are included as well. Since customers and suppliers

have great influence on manufacturing flow and productivity, the JIT strategy

develops tactics to enlist them into the job as well. Suppliers are encouraged to deliver

on time, in small quantities and with zero defects. A good partnering relationship is

essential here. In addition, customers are encouraged to order in small quantities to

meet their short-term needs, and in return they will benefit in reducing their inventory

costs too. Therefore, communication with both suppliers and vendors must improve to

encompass short lead times and high service levels as to harness the full benefits of

JIT.

3.3 Implementation.

JIT is a strategy that requires dedication to perfection at all levels in the

manufacturing process. It is difficult to achieve and it takes a long time to reap

significant gains [Evans, 1993]. It must be noted that the philosophy is not a short-

term program or project, but a lifetime avocation; it is not a goal, but a journey. Some

organisations have failed in their attempts to implement JIT, the greatest attribute

being that it was not understood as a philosophy that covers all aspects and

departments in an organisation, as attempts were made to introduce parts of JIT here

and there. Failure is adamant since JIT is a close knitted web of techniques and ideas

that support each other, and all of them play an important role for the systems

success.

The philosophy has been developed to suit perfectly the type of production called

mass production or repetitive manufacturing. It requires a relatively stable pattern of

demand, and is easier to implement in factories that do not produce significantly

different products. Also, such a pull production philosophy requires a high degree of

repetitiveness and fixed routings and therefore, is not universally applicable.

However, nearly all companies have some degree of repetitiveness, and JIT can be

effectively applied to such, while the remaining products or parts can be controlled

using traditional methods.

Effects of JIT production [Schonberger, 1982]:


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4. Optimised Production Technology (OPT).

OPTs objective is to schedule production so that the production output is maximised.

The key distinctive feature is its ability to identify and isolate bottleneck operations,

then to focus on these bottlenecks to determine production plans and schedules for the

entire shop. This simple idea could lead to the better utilisation of manufacturing

resources, resulting in greater productivity and lower costs.

Evans [1993] perceives that OPT can be viewed form several perspectives. These

being: as a philosophy for scheduling, as a language for modelling manufacturing

operations, as a software system for manufacturing resource planning, or as a tool for

co-ordinating the efforts of marketing, engineering and manufacturing to realise the

common goals of the organisation. Moreover, Hill [1991] describes OPT as a sound

aid to achieve the only goal in any manufacturing organisation, and that goal is to

make money.

4.1 The ten rules of OPT.

To achieve this goal, Hill [1991] goes on to suggest that there are three important

factors that have to be carefully considered. They are throughput (rate at which the

manufacturing system generates money through sales), inventory and the operational

expense (amount in which is spent to turn the inventory into sales). These in turn feed

into the ten rules of its philosophy [Hill, 1991]:

1) Balance flow, not just capacity: Capacity and a smooth flow of materials should

be considered and maintained simultaneously, which is similar to the JIT

approach.

2) The level of utilisation of a non-bottleneck is determined not by its own potential

but by some other constraint in the system: The throughput (rate of which themanufacturing system generates money through sales) of a system is limited by

Heightened

awareness of

problems and

problem causes.

Less inventory in

the s stem.

Less indirect cost for:

interest on idle inventory,

space and equipment to

handle inventory,

inventory accounting and

physical inventory

control.

Fewer rework

labour hours.

Less material

waste.

Scrap/quality

control.

Smoother output

rates.

Fast feedbacks on

defects.

Reduced buffer

inventories and/or

workers.

Lot size

reductions

JIT

roduction.

Ideas for

controlling

defects

Ideas for improving

JIT delivery

performance.

Ideas for cutting

lot sizes.

Less material, labour and indirect inputs for the same or higher output + higher productivity.

Less inventory in the system = faster market response, better forecasting and less administration.


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the bottleneck (a resource whose capacity is equal to or less that the demand

placed upon it). Therefore, it is necessary to control the inputs into the system

since it should be the bottleneck that dictates the throughput of the system. If non-

bottlenecks resources produce more than bottlenecks can absorb, or more than the

demand dictates, then inventory builds up and operating expenses are increased.

3) Utilisation and activation of a resource are not synonymous: This rule definesutilisation as the degree to which a resource should be used in order to achieve thestrategic goal of profitability, and activation as the degree to which the resource

can be used.

4) An hour lost at a bottleneck is an hour lost for the entire system: Bottleneckresources should be utilised 100% at all times: breaks should not occur and set-up

times must be reduced.

5) An hour saved at a non-bottleneck is just a mirage: Bottleneck resources limit thecapacity of the system, hence, saving non-bottleneck time does not effect the

efficiency of the system.

6) Bottlenecks govern both the throughput and the inventory in the system:Inventories can be controlled where the bottlenecks are located, and whichdetermines the throughput.

7) The transfer batch may not, and many times should not, be equal to the processbatch: The transfer batch is the amount of product transferred from one operation

to another, and the process batch being the amount processed at any operation

between transfers. The numbers should be flexible, since it is essential for the

flow of product from raw material to the finished goods.

8) The process batch should be variable, not fixed: When there is a different numberof parts to an object that are to be manufactured on different equipments, the

process batch needs to be varied in order to maintain a smooth and rapid flow, and

hence reducing inventory.

9) Schedules should be determined by looking at all constraints simultaneously.Lead-times are the result of a schedule and cannot be predetermined: Lead-times

depends upon the sequencing (the sequence in which different parts, with different

processing times are being loaded), and so cannot be determined in a capacity

bound situation unless the capacity is considered.

10) The sum of the local optima is not equal to the optimum of the whole: OPT seeksto measure the performance of the plant as a whole based on its raw material input

and the final product output.

4.2 Implementation.

OPT is a two part approach to production planning and scheduling: conceptual and

software based. Furthermore, the implementation of the ten rules theory alone can

bring substantial benefits to an organisation, and the software is used to produce

realistic schedules.

The software package for OPT is similar to an MRP/MRP II system [Muhlemann et

al, 1992]. It can provide a detailed description of the production system in a product

network that reflects the reality of the manufacturing process. Sales forecasts are

taken and, with product routing of bills of materials data, a resource network can be

built up incorporating information relating to the resources. It then takes the

marketing forecasts and uses them to backward schedule these orders from theirrequired dates (see figure below) and can show exactly how the product is made,


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using information commonly found in a companys bill of materials (BOM). The

system can also carry out a series of checks to determine data accuracy, which is

essential in such an industry.

Outline of the OPT system [Sapoutzis, 1995]:

4.3 Advantages.

OPT is seen as the wests challenge against Japanese manufacturing. It shares many

of the JIT views on manufacture, and contains much of the insights that underlie the

kanban system [Browne et al, 1988]. Evans [1993] describes its many advantages:

1. A simplified technique for production scheduling: Schedules are not time-consuming to develop. Schedules do not require much data. Less accuracy is required in the data. Less computer-processing capability is required. Less personnel time is required to analyse the schedule.

Input data:

- Sales/marketing forecasts.- Resources (workers, machines).- Product routings.- Bills of materials (BOM).- Work patterns.

Output reports:

- Work dispatch lists.- Work centre/machine utilisation

statements.

- Material requirement plans.

Split module:

-

Divides network into critical and non-critical.- Critical resources are optimally scheduled.- Non-critical resources are reverse-scheduled to

serve these, building in some slack.

Serve module:

- Backward schedule to infinite capacity.- Gives load profile for each work centre.- Allows identification of critical resources.

Buildnet module:

- Combined BOM, routing and order data to form aresource network.

OPT s stem.


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2. Less complex user portion: The sophistication of the internal mathematical technique makes the system

users job easier.

User knowledge requirement is small.3. Rapid projection of schedule: Quick schedules for the quick modification of the schedules and therefore more

flexibility.

Schedule changes can occur in a few hours rather than days. Quick schedule development allows for simulation capability.

4. Plant production analysis: Bottlenecks in the production process are specifically defined. Improvements are easily made on the bottlenecks because their definition is clear. Simulation can be used to test variations in plant output and their effects on the

plant load.

Capacity changes can be simulated.5. Other: Actual manufacturing resources are taken into account. Production output is maximised and inventory is minimised. A 10% or greater increase in production output is possible. A 20% or greater reduction in inventory is possible. Smaller batch sizes are calculated based on profitability rather than economic

order quantity (EOQ).

4.4 Disadvantages.

Unfortunately, as with any other manufacturing system at present, still entails many

disadvantages [Evans, 1993]:

1. Requires plant reorganisation: Conceptual organisation is required. Data processing systems are replaced. Management style must be changed. New reporting systems must be learned. Equipment changes and movement may be necessary in order to use OPT

efficiently.

2. Disruption of costing and accounting systems: Efficiency can no longer be calculated. Job cost-control data is restricted in some areas. Performance evaluations no longer exist.3. Users disrupted: Users must be retrained. New reports must be developed for data processing and accounting to handle the

new information base.

4. Other: OPT is more complex than other manual methods. A tighter schedule is produced than with other methods, allowing less ability to

accommodate production errors.

The financial analysis system is changed.


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5. References.

American Telephone & Telegraph Company. (1993) Moving Design intoProduction. McGraw-Hill, United States of America.

Anderson, E. J. (1994) Management of Manufacturing, Models and Analysis.Addison-Wesley, Wokingham, pp. 42 - 50.

Browne, J., Harhen, J. & Shivnan, J. (1988) Production Management Systems:A CIM Perspective. Addison-Wesley Publishing Company, Wokingham.

Buffa, E. S. & Sarin, R. K. (1987) Modern Production/OperationsManagement: Eighth Edition. Wiley, Canada.

Burbidge, J. L. (1996) Period Batch Control. Oxford University Press, Oxford. Delmar, D. (1985) Operations and Industrial Management: Designing and

Managing for Productivity. McGraw-Hill, USA.

Evans, J. R. (1993) Applied Productions and Operations Management: FourthEdition. West Publishing, United States of America.

Fogarty, D. W., Hoffmann. T. R. & Stonebraker, P. W. (1989) Production andOperations Management. South Western Publishing, Ohio.

Hill, T. (1991) Production and Operations Management: Text and Cases.Second edition, Prentice Hall, pp. 215 217.

Horne, C. A. (1987) Product Strategy and the Competitive Advantage. P&IMReview, no. 12, December.

McMahon, C. & Browne, J. (1993) Just-In-Time in CAD CAM fromPrinciples to Practice. Addison-Wesley, Wokingham.

Muhlemann, A., Oakland, J. & Lockyer, K. (1992) Production and OperationsManagement. Sixth ed., Pitman, London.

Plossl, K. R. (1987) Engineering for the Control of Manufacturing. Prentice-Hall, New Jersey.

Sapoutzis, P. (1995) Use of Modern Manufacturing Techniques to improve theOperation of a Production Cell. MSc Advanced Manufacturing Systems

dissertation, University of Salford.

Schonberger, R. J. (1982) Japanese Manufacturing Techniques: Nine HiddenLessons in Simplicity. Free Press, New York.


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Sower, V. E., Motwani, J. & Savoie, M. J. (1997) Classics in Production andOperations Management. International Journal of Operations and Production

Management, vol. 17, no. 1, pp. 15 28.

Ulrich, K. T. & Eppinger, S. D. (1995) Product Design and Development.McGraw-Hill, Singapore.

Voss, C. A. ed. (1995) Manufacturing Strategy: Process and Content.Chapman & Hall, London.

Voss, C. A., Ahlstrom, P. & Blackmon, K. (1997) Benchmarking andOperational Performance: Some Empirical Results. International Journal of

Operations and Production Management, vol. 17, no. 10, pp. 1046 1058.

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