Beni Asllani

Copyright 2006 John Wiley & Sons, Inc.

University of Tennessee at Chattanooga
 Process planning
 Process analysis
 Process innovation
 Technology decisions
 Capacity decisions

6-2
 Process
 a group of related tasks with specific inputs and outputs
 Process design
 defines what tasks need to be done and coordinated among functions,
people, and organizations
 Process planning
 Determines how output will be produced and converts design into
workable instructions for manufacture or delivery
 Process strategy
 determines organization’s overall approach for physically producing
goods and services

6-3
 Capital intensity
 mix of capital (i.e., equipment, automation) and labor
resources used in production process
 Process flexibility
 ease with which resources can be adjusted in response to
changes in demand, technology, products or services, and
resource availability
 Vertical integration
 extent to which firm will produce inputs and control
outputs of each stage of production process
 Customer involvement
 role of customer in production process

6-4
 Cost  Speed
 Capacity  Reliability
 Quality  Expertise

6-5
 Vertical Joint Strategic Arms-Length
Integration Venture Alliance Relationship
(100% (equity (long-term (short-term contract
ownership) partner) supplier or
contract; single purchasing
collaborative decision)
relationship)

Source: Adapted from Robert Hayes, Gary Pisano, David Upton, and
Steven Wheelwright, Operations Strategy and Technology: Pursuing
the Competitive Edge (Hoboken, NJ: 2005), p. 120

6-6
 Projects
 one-of-a-kind production of a product to customer order
 Batch production
 systems process many different jobs through the system
in groups or batches
 Mass production
 produces large volumes of a standard product for a mass
market
 Continuous production
 used for very-high volume commodity products

6-7
 PROJECT BATCH MASS CONT.

Made-to- Made-to-
Type of
Unique order stock Commodity
product
(customized) (standardized )

One-at-a- Few
Type of Mass Mass
customer time individual
market market
customers

Product
demand Infrequent Fluctuates Stable Very stable

Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive
Advantage (New York:McGraw-Hill, 2001), p. 210

6-8
 PROJECT BATCH MASS CONT.

Demand Low to
Very low High Very high
volume medium

Number of Infinite
different Many, varied Few Very few
products variety

Repetitive, Continuous,
Production Long-term Discrete, job
system assembly process
project shops
lines industries
Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive
Advantage (New York:McGraw-Hill, 2001), p. 210

6-9
 PROJECT BATCH MASS CONT.

Varied General- Special- Highly

Equipment
purpose purpose automated

Primary Mixing,
type of Specialized
Fabrication Assembly treating,
work contracts
refining

Experts, Limited
Worker Wide range Equipment
skills crafts- range of
of skills monitors
persons skills
Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive
Advantage (New York:McGraw-Hill, 2001), p. 210

6-10
 PROJECT BATCH MASS CONT.

Efficiency, Highly efficient,

Custom work, latest Flexibility,
Advantages technology quality
speed, large capacity,
low cost ease of control

Capital
Non-repetitive, Costly, slow, Difficult to change,
Dis- investment;
small customer difficult to far-reaching errors,
advantages lack of
base, expensive manage limited variety
responsiveness
Machine shops, Automobiles,
Construction, print shops, televisions, Paint, chemicals,
Examples shipbuilding,
bakeries, computers, foodstuffs
spacecraft
education fast food
Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage (New
York:McGraw-Hill, 2001), p. 210

6-11
Cost
 Fixed costs - constant regardless of the number of
units produced
 Variable costs - vary with the volume of units
produced
Revenue - price at which an item is sold
Total revenue - price times volume sold
Profit - difference between total revenue and total
cost

6-12
 Total cost = fixed cost + total variable cost
▪ TC = cf + vcv
 Total revenue = volume x price
▪ TR = vp
 Profit = total revenue - total cost
▪ Z = TR – TC = vp - (cf + vcv)

6-13
 TR = TC
vp = cf + vcv
vp - vcv = cf
v(p - cv) = cf
cf
v= p-c
v

Solving for Break-Even Volume

6-14
 Fixed cost = cf = $2,000
Variable cost = cv = $5 per raft
Price = p = $10 per raft

Break-even point is
cf 2000
v= p-c = = 400 rafts
v 10 - 5

6-15
$3,000 — Total
cost
line

$2,000 —

$1,000 —

Total
revenue
line
400 Units
Break-even point

6-16
 Process A Process B
$2,000 + $5v = $10,000 + $2v
$3v = $8,000
v = 2,667 rafts

Below 2,667, choose A

Above 2,667, choose B

6-17
$20,000 — Total cost of
process A

$15,000 — Total cost of

process B

$10,000 —

$5,000 — Choose Choose

process A process B

| | | |
1000 2000 3000 4000 Units

Point of indifference = 2,667 Units

Example 4.2

6-18
 Set of documents that detail manufacturing and
service delivery specifications
 assembly charts
 operations sheets
 quality-control check-sheets

6-19
 An Operations Sheet for a Plastic Part
Part name Crevice Tool
Part No. 52074
Usage Hand-Vac
Assembly No. 520

Oper. No. Description Dept. Machine/Tools Time

10 Pour in plastic bits 041 Injection molding 2 min
20 Insert mold 041 #076 2 min
30 Check settings 041 113, 67, 650 20 min
& start machine
40 Collect parts & lay flat 051 Plastics finishing 10 min
50 Remove & clean mold 042 Parts washer 15 min
60 Break off rough edges 051 Plastics finishing 10 min

6-20
 Process flowcharts
 Symbolic representation of processes
 Incorporate
▪ nonproductive activities (inspection, transportation,
delay, storage)
▪ productive activities (operations)

6-21
Process Flowchart Symbols

Operations
Inspection
Transportation
Delay
Storage
6-22
 Date: 9-30-02 Location: Graves Mountain
Analyst: TLR Process: Apple Sauce
Process

Distance
Operation
Transport
Description

Storage
Inspect

(feet)
(min)
Time
flowchart

Delay
Step
of
process

of apple 1
2
Unload apples from truck
Move to inspection station
20
100 ft

processing 3
4
Weigh, inspect, sort
Move to storage
30
50 ft
5 Wait until needed 360
6 Move to peeler 20 ft
7 Apples peeled and cored 15
8 Soak in water until needed 20
9 Place in conveyor 5
10 Move to mixing area 20 ft
11 Weigh, inspect, sort 30
Page 1 0f 3 Total 480 190 ft

6-23
Customer Waiter Salad Chef Dinner Chef

N
Is order
Place order complete?

Y
Give soup or salad order to chef Prepare soup or
salad order
Give dinner order to chef Prepare dinner
order
Drink Get drinks for customer

Eat salad or Deliver salad or soup order to customer Give order

soup to waiter

Eat dinner Deliver dinner to customer Give order

to waiter
Receives check Deliver check to customer

Gives payment Receive payment for meal

to waiter

Credit
Cash or
Credit?

Collect change,
Cash
Bring change to customer
A Process
leave tip
Map of
Run credit card through

Fill in tip
Restaurant
Return credit slip to customer
amount
Service
Collect tip

6-24
Service
Blueprint
for an
Installment
Lending
Operation
Source: Lynn Shostack, “Service Positioning through Structural Change,” Journal of Marketing 51 (January 1987), p.
36. Reprinted with permission by the American Marketing Association

6-25
 Continuous improvement
refines the breakthrough

Breakthrough
Improvement

Total redesign of Continuous improvement activities

peak; time to reengineer process
a process for
breakthrough
improvements

6-26
 Manufacturing Product Development
Purchasing
Accounting

Sales Order Fulfillment

Supply Chain Management

Customer Service

Function Process

6-27
Process Innovation Strategic
Directives

Baseline Data
Customer Goals for Process Benchmark
Requirements Performance
Data

High - level Innovative

Process map Ideas Design
Principles

Detailed Model
Process Map Validation Key
Performance
Measures
Pilot Study
of New Design

Goals Full Scale

No Met? Yes Implementation

6-28
 Remove waste, simplify, and consolidate similar
activities
 Link processes to create value
 Let the swiftest and most capable enterprise
execute the process
 Flex process for any time, any place, any way
 Capture information digitally at the source and
propagate it through process

6-29
 Provide visibility through fresher and richer
information about process status
 Fit process with sensors and feedback loops that
can prompt action
 Add analytic capabilities to process
 Connect, collect, and create knowledge around
process through all who touch it
 Personalize process with preferences and habits of
participants

6-30
 Vary the entry point to a problem
 in trying to untangle fishing lines, it’s best to start from the
fish, not the poles
 Draw analogies
 a previous solution to an old problem might work
 Change your perspective
 think like a customer
 bring in persons who have no knowledge of process

6-31
 Try inverse brainstorming
 what would increase cost
 what would displease the customer
 Chain forward as far as possible
 if I solve this problem, what is the next problem
 Use attribute brainstorming
 how would this process operate if. . .
▪ our workers were mobile and flexible
▪ there were no monetary constraints
▪ we had perfect knowledge

6-32
 Financial justification of technology
 Purchase cost
 Operating Costs
 Annual Savings
 Revenue Enhancement
 Replacement Analysis
 Risk and Uncertainty
 Piecemeal Analysis

6-33
Components of e-Manufacturing

6-34
 Product Technology
 Computer-aided  Creates and communicates designs
design (CAD) electronically
 Group technology  Classifies designs into families for easy
(GT) retrieval and modification
 Computer-aided
engineering (CAE)  Tests functionality of CAD designs
 Collaborative electronically
product commerce  Facilitates electronic communication and
(CPC) exchange of information among designers
and suppliers

6-35
 Product Technology
 Product data  Keeps track of design specs and revisions
management for the life of the product
(PDM)
 Product life cycle  Integrates decisions of those involved in
management (PLC) product development, manufacturing, sales,
customer service, recycling, and disposal
 Product definition
 Confines products “built” by customers who
have selected among various options,
usually from a Web site

6-36
 Process Technology
 Standard for  Set standards for communication among
exchange of product different CAD vendors; translates CAD data
model data (STEP) into requirements for automated inspection
 Computer-aided and manufacture
design and  Electronic link between automated design
manufacture (CAD) and automated manufacture (CAM)
(CAD/CAM)
 Computer aided
process (CAPP)  Generates process plans based on
 E-procurement database of similar requirements
 Electronic procurement of items from e-
marketplaces, auctions, or company
websites

6-37
 Manufacturing Technology
 Computer  Machines controlled by software code to perform a
numerically control variety of operations with the help of automated
(CNC) tool changers; also collects processing information
and quality data
 Flexible
manufacturing  A collection of CNC machines connected by an
system (FMS) automated material handling system to produce a
wide variety of parts
 Robots  Manipulators that can be programmed to perform
repetitive tasks; more consistent than workers but
 Conveyors
less flexible
 Fixed-path material handling; moves items along a
belt or overhead chain; “reads” packages and
diverts them to different directions; can be very fast

6-38
 Manufacturing Technology
 Automatic guided  A driverless truck that moves material along a
vehicle (AGV) specified path; directed by wire or tape embedded
in floor or by radio frequencies; very flexible
 Automated storage
and retrieval system  An automated warehouse—some 26 stores high—
(ASRS) in which items are placed in a carousel-type
storage system and retrieved by fast-moving
 Process Control stacker cranes; controlled by computer
 Continuous monitoring of automated equipment;
 Computer-integrated makes real-time decisions on ongoing operation,
manufacturing (CIM) maintenance, and quality
 Automated manufacturing systems integrated
through computer technology; also called e-
manufacturing

6-39
 Information Technology
 Business – to –  Electronic transactions between businesses
Business (B2B) usually over the Internet
 Business – to –  Electronic transactions between businesses and
Customer (B2C) their customers usually over the Internet
 Internet  A global information system of computer networks
that facilitates communication and data transfer
 Intranet  Communication networks internal to an
organization; can be password (i.e., firewall)
protected sites on the Internet
 Extranet
 Intranets connected to the Internet for shared
access with select suppliers, customers, and
trading partners

6-40
 Information Technology
 Bar Codes  A series of vertical lines printed on most packages that
identifies item and other information when read by a
 Radio Frequency scanner
Identification tags
(RFID)  An integrated circuit embedded in a tag that can send
and receive information; a twenty-first century bar code
 Electronic data with read/write capabilities
interchange (EDI)  A computer-to-computer exchange of business
documents over a proprietary network; very expensive
 Extensive markup and inflexible
language (XML)
 A programming language that enables computer – to -
 Enterprise resource computer communication over the Internet by tagging
planning (ERP) data before its is sent
 Software for managing basic requirements of an
enterprise, including sales & marketing, finance and
accounting, production & materials management, and
human resources

6-41
 Information Technology
 Supply chain
management (SCM)
 Customer relationship
management (CRM)
 Decision support
systems (DSS)
 Expert systems (ES)
 Artificial intelligence
(AI)
 Software for managing flow of goods and information
among a network of suppliers, manufacturers and
distributors
 Software for managing interactions with customers and
compiling and analyzing customer data
 An information system that helps managers make
decisions includes a quantitative modeling component
and an interactive component for what-if analysis
 A computer system that uses an expert knowledge base
to diagnose or solve a problem
 A field of study that attempts to replicate elements of
human thought in computer processes; includes expert
systems, genetic algorithms, neural networks, and fuzzy
logic
6-42
 Capacity
 maximum capability to
produce
▪ rated capacity is theoretical
▪ effective capacity includes
efficiency and utilization
 Capacity utilization
 percent of available time
spent working
 Capacity efficiency
 how well a machine or worker
performs compared to a
standard output level
 Capacity load
 standard hours of work
assigned to a facility
 Capacity load percent
 ratio of load to capacity
6-43
Capacity Expansion Strategies

6-44
 Capacity increase depends on
 volume and certainty of anticipated demand
 strategic objectives
 costs of expansion and operation
 Best operating level
 % of capacity utilization that minimizes unit costs
 Capacity cushion
 % of capacity held in reserve for unexpected
occurrences

6-45
 it costs less per unit to produce high levels of output
 fixed costs can be spread over a larger number of units
 production or operating costs do not increase linearly with
output levels
 quantity discounts are available for material purchases
 operating efficiency increases as workers gain experience

6-46
 Occur above a certain level of output
 Diseconomies of Distribution
 Diseconomies of Bureaucracy
 Diseconomies of Confusion
 Diseconomies of Vulnerability

6-47
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