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180 CHAPTER 6 The Production Process

paint. The real-world example below illustrates discrete, repetitive, and process
manufacturing as implemented by Apple, Intel, and Valero, respectively.

Business Processes in Practice 6.1: Types of
Production Processes

Apple Inc. produces its Macintosh computers using a Finally, a prominent example of process manufac-
1
discrete production process. Apple manufactures sev- turing is Valero Energy Corporation, the largest inde-
eral models of Mac laptop and desktop computers on the pendent petroleum-refi ning company in North America.
same production lines in batches of varying quantities. For Valero produces fuel, chemicals, and other petroleum
example, the Mac desktop production line might produce products in 15 refi neries across North America. The
10,000 units of the iMac 21.5-inch models and then switch company’s refi neries operate 24/7 in a continuous pro-
the line to produce 15,000 units of the 27-inch model. duction process, converting a total capacity of nearly
In contrast, Intel produces most of its processors 3 million barrels of raw petroleum into multiple prod-
in a repetitive production process. Due to the immense ucts. Once a refi nery starts full production, it can be
costs and technical complexity associated with semicon- many months or years before Valero shuts it down for
ductor production, Intel must construct dedicated pro- maintenance.
duction lines for each of its microchips. Often, switching
Source: Apple, Intel, and Valero company reports.
a production line from one chip to another can cost tens
of millions of dollars. Therefore, to maximize cost effi - 1 Technically, Apple uses contract manufacturers to execute the
ciencies, Intel attempts to run continuous production of physical production, but retains a great deal of visibility and
a specifi c chip for as long as possible. To successfully control, effectively using the contract manufacturers as “vir-
implement this strategy, Intel must plan its production tual” Apple manufacturing facilities.
very carefully.

Regardless of the particular production process used, however, compa-
nies typically employ two common production strategies, make-to-stock and
make-to-order. In make-to-stock production, the production process is trig-
gered by a need to increase inventory. Inventory is typically stored in a ware-
house until it is used to fulfi ll customer orders. When inventory falls below
certain predefi ned levels, the make-to-stock process is initiated, even if there
is no pending customer order. In contrast, under the make-to-order strategy,
production is triggered by the need to fi ll a specifi c customer order. In other
words, production does not begin until a customer orders a product.

Business Processes in Practice 6.2: Make-to-
Stock vs. Make-to-Order

A good example of a company that uses the make-to- to maximize the cost effi ciencies of buying materials
stock strategy is Apple Inc. Apple uses the make- in bulk quantities and doing large production runs.
to-stock process for Macs sold in its Apple stores. The Apple and its contract manufacturers then produce
company fi rst estimates the consumer demand for its a specifi c quantity of each Mac model and ship them
Mac computers. It then calculates its available manu- from the factory to the Apple stores and other retail
facturing capacity and the quantities of raw materials it outlets for sale. When customers come into an Apple
will need to build enough computers to meet consumer store, they expect that the computer they want to buy
demand. Apple’s strategy is to purchase raw materi- will be there and that they can take it home immedi-
als and reserve manufacturing capacity ahead of time ately after purchasing it.

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