Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

8.1 Characteristics of the Process Industry

Intended learning outcomes: Explain divergent product structures and by-products. Describe high-volume line production, flow resources and inflexible facilities. Produce an overview on large batches, lot traceability, and loops in the order structure.

8.1.1 Divergent Product Structures and By-Products

One of the characterizing features of the processor-oriented concept is divergent product structure. This type of structure is an upside-down arborescent structurewith by-products.

A primary product is the product that the production process is designed to manufacture. 

A by-product is a material of value produced as a residual of or incidental to the process producing the primary product. A waste product is seen as a by-product without any value.

Manufacture of by-products is the simultaneous creation — that is, in the same manufacturing step — of further products in addition to the primary product.

The process often starts with a single commodity (raw material or inter­mediate product), although sometimes several commodities are processed together. The resulting products can be either intermediate products or end products. In some cases, a number of by-products (frequently steam or power) arise in addition to the primary product(s). By-products do not go directly into other products, but they can be recovered, utilized, and recycled in subsequent production processes. In contrast to by-products, which can reenter into the production process either directly or after appropriate treatments, waste products must be disposed of. Waste treatment and disposal engender additional costs.

The first example in Figure stems from the chemical process industry.

Fig.        Chemical production process: reactor with distillation column.

Here, the production of by-products is the result of physical and chemical reactions, or occurs through the changeable operating states of the production equipment. The processor can produce three grades (A, B, and C) of a certain fluid product. Basic material G moves from a feed tank (buffer) to the reactor. The chemical reaction produces the desired material, but also by-product N, which is separated out through the aid of a distillation column, by supplying heat and generating vapor. N exits the distillation column and the production unit.

Example for manufacture of by-products: Mineral oil
The preparation of mineral oil is a typical example of manufacture of by-products: a minimum of two products are produced at the same time in one step of a production process. The following Flash animation illustrates how a multitude of products are manufactured from a single base material (raw oil) in a production process that has many steps. The presentation clearly shows that manufacture of by-products is typically connected with divergent product structures. This is even more impressive considering that most refinery products are themselves raw materials for entire industries (e.g., plastics).

A change of product from one grade to another without shutting down the reactor involves resetting temperature and pressure. Transitional materials are obtained as a result of these changes. These materials are of a lesser quality, and later they will have to be mixed with a sufficient quantity of high-grade materials, which will be produced once operations reach a stable state. This means that a large quantity of each grade must be produced before the next change of product. Figure shows the flow of goods using MEDILS notation (see Section 4.1.3).


Fig.        The manufacture of by-products in chemical production.

The second example is taken from sheet-metal working. Here, washers are stamped from a strip of metal. In this case, beyond the technical process itself, by-product production makes economic sense: it allows the fullest possible utilization of the raw material. Figure shows a section of the metal strip after a typical stamping operation.

Fig.        Washers stamped from a strip of sheet metal by a stamping press.

To utilize more of the strip when producing washer X, a small washer Y is stamped inside each large washer. In addition, the press stamps other washers, of a size determined by the honeycomb principle, between the larger washers. As a result, 5 parts are obtained from each pass of the stamping machine: 2 each of part X and part Y and 1 of part Z. This can be expressed as the goods flow shown in Figure The waste product obtained is the stamped sheet metal strip B′. There is an interesting parallel here to our first example: This stamping procedure makes sense only if the washers are separated out according to size. In the first example, it was necessary to separate the primary products (A, B, and C) from by-product (N).


Fig.        The manufacture of by-products in the sheet-metal working industry.

Exercise: Manufacture of by-products in mechanical industry
Try to produce a washer stamping pattern in such a way that the least amount of waste is produced. Be aware, however, that the need for the individual washers varies and over-production should be avoided.
The Flash animation shows a part of a continuous metal sheet from which the washers, etc. are cut.

The third example shows the production of split steel collets, which are used for tool holding and disengaging. Figure shows a typical production process that yields a number of different sizes of collets. Here, reasons of economy dictate the production of by-products.

Fig.        Production of collets from a steel cylinder.

Collets S1, S2,…, Sn, each of different diameter d1, d2,…, dn, can be produced from a round bar M of diameter D. Here, again, the decision to produce by-products is based on economy. Once production has been set up, collets of various diameters can be produced with negligibly short setup times. Since various collet diameters are produced together, the possible batch size is relatively large. This minimizes the share of setup for each collet. At the same time, only a few collets of each size are produced, which keeps down the carrying cost for each size and for production as a whole. Figure shows the flow of goods for collet production.

Fig.        Production of collets from a steel cylinder.

The fourth and last example is temporary assembly, taken from the manu­facture of precision machines. Here, components at low production structure levels may have to be put together for mutual adjustment, disassembled again, and sent on for further processing. At the latest at final assembly, the fitted components are rejoined. This is the typical “saucepan and lid” problem, as formally shown in Figure The saucepan and the lid have to be produced at the same time since they have to be matched to each other. However, they may then pass through other, quite different orders before they are finally assembled.

Fig.         Temporary assembly: the “saucepan and lid” problem.

There are thus a number of reasons for producing by-products in the process industries. In many cases, the reason lies in the nature of the chemical, biological, or physical processes in the various stages of processing. However, there may be economic factors that demand appropriate processing techniques.

8.1.2 High-Volume Line Production, Flow Resources, and Inflexible Facilities

The following values of characteristic features indicate processor-oriented methods as the appropriate business methods for planning & control:

Production environment: In the process industry, end products stores, and thus make-to-stock are widespread and important. Chemical, pharmaceuti­cal, or grocery products are, ultimately, stocked at the shelf in retail shops. Upstream added value stages are also kept in stock, where efficient.

Facility layout: Here, we find high-volume line production, and — in particular — continuous production. Production processes in process industries (producing chemicals, paint, oil, and so on) usually have to carry out an entire sequence of operations (a process stage; see the definition below), that is, one operation after another in a continuous fashion.

A flow resource F is an intermediate product that should not or cannot be stored during the process stage and therefore flows through the process continuously.

An intermediate product becomes a flow resource mainly because of its physical nature or condition. An example is the active substances produced in the chemical industry. As a data element in the product structure, a flow resource is at the same level as the component materials for the subsequent operation or (basic) manufacturing step, and it facilitates modeling and monitoring of the balance of material inputs and outputs of individual manufacturing steps. Figure shows a product Z produced from starting material G.


Fig.        Flow resources within a process stage.

The intermediate states F1 and F2 “flow,” meaning that they are not, or cannot, be stored in containers or tanks. Thus, they cannot be in buffers at these work centers[note 801]. This also means that storable work in pro­cess cannot build up at these work centers. This reduces the deg­ree of freedom for capacity planning (that leeway is utilized in the conven­tional MRP II concept; see the comments on queues in Section 13.2).

Example: Flow Resource
In practice, flow resources usually refers to fluids, gases or bulk goods that are moved forward between work centers and are not stored in-between, or to materials that cannot be stored, depending on the circumstances. From the point of view of planning and control, one result is that the stations connected to each other by the flow resources have to be considered as one unit. Thus, there is no freedom for individual capacity planning of each work center. The effects of even a temporary lapse in attention is shown in the following Flash animation in a drastic but thoroughly realistic way.

Flexible capability of the production infrastructure: Single-purpose faci­li­ties were common in chemical production for a long time. For very large-scale mass production, there are sound economic reasons for this type of structure. However, to adapt capacity to load more flexibly and particularly to facilitate change of product on the same pro­duc­tion resources, multi­purpose facilities composed of modules became more fre­quent. Nevertheless, they are far away from achieving the flexibility of mechanical production. Inflexible facilities still exist, not least because of conditions imposed by government regulations. See also [Hübe96], p. 23 ff. Food and drug pro­duction are sub­ject to strict quality control by bodies such as the FDA (U.S. Food and Drug Administration). Production of foodstuffs and drugs must follow a set of guidelines known as Good Manufactu­ring Practices, or GMP (also known as Quality System Regulation). Under GMP, manu­facturing practi­ces are inspected and approved at each plant, which means that it is not pos­si­ble to simply switch production between facilities in response to temporary capacity shortages or mechanical faults, for example. The production process would also have to be validated at the alternative facility.

8.1.3 Large Batches, Lot Traceability, and Loops in the Order Structure

Customer tolerance time for chemical and pharmaceutical as well in for food products is minimal, and production time is often very long. Thus, the reason for order release is mostly a forecast. Long lead times make any planning system extremely susceptible to demand fluctuations. which can make incorrect predictions expensive. On the other hand, if there is a continuous usage on a production structure level, the prediction can be related directly to this level and does not have to be derived from the predictions for higher production structure levels. In this case, the reason for release is consumption, leading to a stock replenishment.

Batch or lot size of an order: Some processes require large quantities to be produced to obtain the desired quality. Preparation and setup times (such as for cleaning reactors) are generally very long in the process industry, and, strictly speaking, the process start-up should be included in the setup time. Furthermore, the quantities required by the market are sometimes extremely large, as is the case in the food production industry, for example. Here the products are essentially mass produced.

Lot traceability is required by the governing regulations, but also due to product liability and problems associated with recalling a product. Control of lots, batches, or charges or even positions in lots serve this purpose. For further information on lot control, see Section 8.2.3. Lot control is also practiced for the following reasons:

  • Active substances have a limited shelf life. If a batch results in various units, such as different drums of fluids, they must be labeled for identification (numbered individually in ascending order, for instance). For further processing, this procured or produced material must be identified by means of this relative position.
  • To ensure uniform quality within a batch. This is frequently the case in the chemical and pharmaceutical industries and sometimes in the metal- or steel-working branches. It is particularly useful if the product characteristics change from one pass through the process to the next, or if products are produced by mixing or merging different materials, and the starting materials do not affect the characteristics of the end product in a linear manner. One example of this is the mixing of fuels, where the addition of high-octane materials does not have a linear effect on the increase in the octane level.

Another feature of the process industry is a product structure with loops. The chemical reactor example shown in Figure might use catalyst[note 802] K to influence the reaction rate. Catalyst K does not get used up, and it becomes available again as soon as the reaction has ended. This creates the goods flow shown in Figure As the output and input store for catalyst K are the same, a loop results.

Fig.        Product structure with loops.

Another example of a product structure with loops is when co-products are treated, and the recycled material reenters the processor as a starting material. In another case, amounts of product that have already been mixed in a mixing process stage can be returned to the process as often as is necessary to ensure the desired level of homogeneity. An undirected network of operations results. This is typical in the production of paints or pharmaceutical products.

Course sections and their intended learning outcomes

  • Course 8 – The Concept for the Process Industry

    Intended learning outcomes: Produce characteristics of the process industry. Disclose processor-oriented master and order data management. Explain in detail processor-oriented resource management. Describe special features of long-term planning.

  • 8.1 Characteristics of the Process Industry

    Intended learning outcomes: Explain divergent product structures and by-products. Describe high-volume line production, flow resources and inflexible facilities. Produce an overview on large batches, lot traceability, and loops in the order structure.

  • 8.2 Processor-Oriented Master and Order Data Management

    Intended learning outcomes: Produce an overview on processes, technology, and resources. Present the process train: a processor-oriented production structure. Disclose lot control in inventory management.

  • 8.3 Processor-Oriented Resource Management

    Intended learning outcomes: Explain campaign planning. Differentiate between processor-dominated Scheduling and material-dominated scheduling. Describe a nonlinear usage quantity and a product structure with loops.

  • 8.4 Special Features of Long-Term Planning

    Intended learning outcomes: Disclose the determination of the degree of detail of the master production schedule. Describe pipeline planning across several independent locations.

  • 8.5 Summary


  • 8.6 Keywords


  • 8.7 Scenarios and Exercises

    Intended learning outcomes: Differentiate between batch production and continuous production. Calculate an example of manufacture of by-products. Elaborate an example of production planning in process industries.

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