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

1.2.3 Process-Related Business Objects

Intended learning outcomes: Present in detail business objects such as operation, setup and run time. Explain the routing sheet, the critical path, interoperation time and the production lead time. Describe the product module, the production structure, and the cumulative lead time. Disclose the process plan. and the lead time offset.



An understanding of the composition of the lead time is fundamental — particularly in terms of short lead times. The most detailed business object to examine is the operation. Factors affecting this building block of a business process have a strong influence on lead time.

An operation in logistics is a step in a process that is required for the design and manufacturing of a product. Another term used is routing sheet position or basic manufacturing step. Examples of operations are “cut,” “stamp,” or “bend” in industrial areas, or “serve,” “maintain,” “advise,” or “repair” in service industries. 

Setup, or changeover, is the work required to change or prepare the production infrastructure (machines, tools, and other resources) for the next order.

Operation time is the time required to complete an operation. In the simplest case, operation time is the sum of setup time, or setup lead time, that is, the time required for setup, and run time for the actual work on the order.

Run time is, in the simplest case, the product of the size of the lot, or batch, that is, the number of the units of measure produced together, and the run time per unit, that is the total treatment time for one unit of the batch.

When the run times are planned as a series after setup time, the simplest formula for operation time is as shown in Figure 1.2.3.1.

Fig. 1.2.3.1        The simplest formula for operation time.

Operation time can refer to either planned or real manufacturing processes.

Standard time, or standard hours, is the length of time that should be required to set up and run an operation. It assumes average efficiency of people and production infrastructure and is also frequently used as a basis for planning and incentive pay systems as well as a basis for allocating overhead costs. 

Actual time is the actual length of time for the execution of an operation in a particular order. It is often used as a basis for job-order costing. 

The routing sheet, operation sheet, or routing of a product is a complex object; it is a list of the operations required to manufacture a particular item from its components. It includes information on the work centers involved (see the definitions in Section 1.2.4 and also [APIC16]). 

The critical path is the set of activities, or operations, that defines the (planned) duration of the network of operations. These activities usually have very little slack time, close or equal to zero. 

The production lead time, or manufacturing lead time, is the total time to manufacture an item, exclusive of lower-level purchasing lead time.

Production lead time is measured along the critical path. It is made up of the three following categories of time:

  • Operation time
  • Inter­operation time, which can occur either before or after an operation and may be wait time, that is, the time a job remains at a work center before or after execution of the operation, or transportation time (move time or transit time)
  • Administration time, the time required to release and complete an order

Lead time projected on the basis of these three categories is a probable value only, because it is based on time averages, particularly for inter­operation time. Wait times depend on the current situation in production and its physical organization. In typical job shop production (see Section 4.4.3), inter­operation time and administration time make up more than 80% of lead time and are thus its main determinants.

A sequence of operations is the simplest and most important order of the operations. A more complex order of the operations makes up a network or repeatedly executed sequences of operations (see Section 14.1.1).

The production structure of a product is the combination of its product structure and the routing sheet for the product itself and for its assemblies and its single parts.

Through combining routing sheets with product structure in production structure, we gain a useful rationale for integration into a structure level, and thus for differentiating an intermediate product from a subsequent, higher structure level.

A production structure level is determined by the arguments shown in Figure 1.2.3.2.

Fig. 1.2.3.2        Useful rationale for combining operations in a product structure level and thus for differentiating an intermediate product.

Within a production structure level, there is no storage. Components needed for this production structure level are drawn from storage or from the immediately preceding production structure level.

The purchasing lead time is the total time required to obtain a purchased item. Included here are order preparation and release time; the supplier lead time (that is, the amount of time that normally elapses between the time an order is received by a supplier and the time the order is shipped); transportation time; and receiving, inspection, and putting into storage (put away time) ([APIC16]). 

The cumulative lead time, or critical path lead time, is the longest planned length of time to accomplish the value-adding activity in question, with respect to the time to deliver to the customer, the lead time for all production structure levels, as well as the purchase lead times.

Depending on the context, lead time denotes either the cumulative lead time, the lead time required for one production structure level, or the purchasing lead time.

The process plan of a product is the total production structure on the time axis.

The process plan is a very complex business object that shows the cumulative lead time to manufacture a product. Figure 1.2.3.3 serves as an example for a product P.

Fig. 1.2.3.3        Process plan for a product P (detailed structure).

The process plan corresponds, as does product structure, to the way that the workers view customer order processing (their scheme, or natural conception of the process).

Lead-time offset is the period of time of preponing a resource requirement (component or capacity) relative to the completion date of a product, based on the lead time for that product.

For each component, we can calculate the lead-time offset. To do this, the proportion of lead time must be calculated along the corresponding branch of the process structure. Throughout the total working process time, this time period is dependent on batch size.




Course section 1.2: Subsections and their intended learning outcomes

  • 1.2 Business Objects

    Intended learning outcomes: Present business-partner, and order-related business objects in detail. Explain product-related, process-related, and resource-related business objects. Produce an overview on rough-cut business objects.

  • 1.2.1 Business-Partner, and Order-Related Business Objects

    Intended learning outcomes: Present in detail the order as a business object. Produce an overview on terms such as business partner, due date, order promising, order confirmation, order status. Differentiate between order positions for items (to be) delivered and labor (to be) performed.

  • 1.2.2 Product-Related Objects

    Intended learning outcomes: Produce an overview on business objects such as item, specializations thereof (particularly part and component), and item family. Explain the product structure and the bill of material. Differentiate between a convergent and a divergent product structure. Describe the concepts of product family, variant, option and commonality.

  • 1.2.3 Process-Related Business Objects

    Intended learning outcomes: Present in detail business objects such as operation, setup and run time. Explain the routing sheet, the critical path, interoperation time and the production lead time. Describe the product module, the production structure, and the cumulative lead time. Disclose the process plan. and the lead time offset.

  • 1.2.4 Resource-Related Business Objects

    Intended learning outcomes: Produce an overview on terms such as facilities, workstations, production equipment, work center, capacity, load, work-center load. Explain the load profile of a work center. Differentiate between standard load and actual load. Disclose capacity utilization and work center efficiency. Differentiate between rated capacity and theoretical capacity.

  • 1.2.5 Rough-Cut Business Objects

    Intended learning outcomes: Identify reasons and principles for defining rough-cut business objects. Disclose the rough-cut product structure and the rough-cut process plan. Explain a way to derive a rough-cut resource requirement plan from a detailed resource requirement plan. Describe a way to establish the rough-cut process plan and the product load profile.