Capturing the Operational Improvement Potential of Production Systems

Abstract: The operational level is where a company’s manufacturing strategy becomes reality and where customer orders are fulfilled through transforming raw materials into finished goods. The research presented here examines the productivity and capacity of operational processes in manufacturing firms. Though both terms are well established in industry, overall, there is ambiguity in their measurement and interpretation across the hierarchal levels of organizations, all the way to the national level. Similar ambiguity is also found in the academic field of operations management, in which much of the related research in recent decades has concentrated on narrow sets of problems, distant from actual shop floor operations. As a result, many existing approaches to assessing the productivity and capacity of production systems either narrowly focus on certain functions of a production process or address them at such an aggregated level that there is insufficient detail to determine the root causes of production system losses. This leads to the risk that improvement potential at an operational level may be disregarded when strategic decisions are made, making it difficult to improve economic efficiency and preventing the sustainable utilization of a firm’s current manufacturing resources. The purpose of this research is accordingly to increase the understanding of the improvement potential of real operational processes by developing a framework for identifying and objectively measuring the relevant characteristics of real-life operational processes related to the improvement of shop floor operations. This research, which incorporates five empirical studies, builds on the theory of performance frontiers and on the body of industrial engineering knowledge. The research illustrates how the analytical logic and structure of the framework can be applied in determining the overall productivity and capacity of firm operations from the micro level and up, by relying on first-order time data measured at the operational level. This establishes a direct link between firm level capacity utilization and the causes of shop-floor productivity losses, constituting the foundation on which to build more knowledge of the effects on plant level capacity utilization that come from realizing operational improvement potentials. The results are also intended to provide guidance for decision-making in manufacturing companies.