Manufacturing and Service Process Structures

CHAPTER FIVE

McGraw-Hill/Irwin

Capacity PlanningCapacity Planning

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• Capacity: the amount of output that can be created by, a process, with a given level of resources over a given time period

Economies & Diseconomies of scaleEconomies & Diseconomies of scale

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• Economies of Scale: If the output rate is less than the optimal level, increasing output rate results in decreasing average unit costs

• Diseconomies of Scale: If the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs

Cost per Unit

Volume (Number of Units)

Diseconomies of ScaleEconomies of Scale

Figure 5-1

Reasons for Economies of ScaleReasons for Economies of Scale

1. Allocation of fixed costs

2. Equipment and construction costs

3. Lower costs for purchases

4. Learning curves

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Product-Process MatrixProduct-Process Matrix

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High

Variety

Flexibility

Cost

Low

CellularManufacturing

MassCustomization

Project

Job Shop

Batch

ContinuousProcess

RepetitiveProcess

Low Volume High

Figure 5-2

Mass customization: mass production + customization

Real world example: Dell

http://www.mymms.com/default.aspx

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Mass customizationMass customization

Cellular manufacturing: production of products with similar process characteristics on small assembly lines called cells

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Cellular manufacturingCellular manufacturing

ActivityActivity

• Identify a product :

–Project

–Job Shop

–Batch

–Repetitive

–Continuous

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Process Structure and Market OrientationProcess Structure and Market Orientation

• Engineer to Order (ETO): unique, customized products

–Example: house building, specialized equipment

• Make to Order (MTO): similar design, customized during production

–Example: Meal at an elegant restaurant, haircut

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Process Structure and Market OrientationProcess Structure and Market Orientation

• Assemble to Order (ATO): produced from standard components and modules

–Example: Dell, subway sandwiches

• Make to Stock (MTS): goods made and held in inventory in advance of customer orders

–Example: Groceries, bookstore

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Service Process MatrixService Process Matrix

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Service

Factory

Service

Shop

Mass

Service

Professional

Service

Low

High

Labor

Intensity

Customization/Customer InteractionLow High

Figure 5-3

Service BlueprintingService Blueprinting

• Physical evidence: tangibles the customers see or collect from the organization

• Customer actions: all actions done by customers during service delivery

• Front office: employee actions in the face-to-face encounter

• Back office: behind the scenes activities

• Support processes: activities necessary for the service, done by employees without direct customer contact

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Service BlueprintingService BlueprintingService BlueprintingService Blueprinting

5–5–1313Figure 5-4

Operations LayoutOperations Layout

• Product layout: resources arranged by regularly occurring sequence of activities

• Process layout: groups together similar resources or functions they perform

• Fixed layout: product cannot be moved during production

• Cellular layout: group technology. Product layout inside the group

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A Product LayoutA Product LayoutA Product LayoutA Product Layout

InIn

OutOut

Process LayoutProcess Layout Process LayoutProcess Layout

• High rate of output• Low unit cost• Labor specialization• High utilization of labor and equipment• Established routing and scheduling

Advantages of Product LayoutAdvantages of Product LayoutAdvantages of Product LayoutAdvantages of Product Layout

• Creates dull, repetitive jobs• Fairly inflexible to changes in volume• Highly susceptible to shutdowns• Needs preventive maintenance

Disadvantages of Product LayoutDisadvantages of Product LayoutDisadvantages of Product LayoutDisadvantages of Product Layout

• Can handle a variety of processing requirements

• Not particularly vulnerable to equipment failures

Advantages of Process LayoutsAdvantages of Process LayoutsAdvantages of Process LayoutsAdvantages of Process Layouts

• In-process inventory costs can be high• Challenging routing and scheduling• Equipment utilization rates are low

Disadvantages of Process LayoutsDisadvantages of Process LayoutsDisadvantages of Process LayoutsDisadvantages of Process Layouts

Fixed-Position LayoutsFixed-Position LayoutsFixed-Position LayoutsFixed-Position Layouts

Typical of projects in which product produced is too fragile, bulky, or heavy to move

Equipment, workers, materials, other resources brought to the site

Low equipment utilization Highly skilled labor Typically low fixed cost Often high variable costs

Cellular LayoutsCellular Layouts

1. Identify families of parts with similar flow paths

2. Group machines into cells based on part families

3. Arrange cells so material movement is minimized

4. Locate large shared machines at point of use

Parts FamiliesParts FamiliesParts FamiliesParts Families

A family of A family of similar partssimilar parts

A family of related A family of related grocery itemsgrocery items

Line Balancing in Product LayoutsLine Balancing in Product Layouts

Used to assign individual tasks to work areas for a desired output rate

1. Determine precedence relationships

2. Calculate Takt time

3. Determine minimum number of work stations = Total of all task times/takt time

4. Determine efficiency = [sum of all task times/(actual work stations X takt time)] X 100

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dayperneededoutput

daypertimeproductionavailable

Line BalancingLine BalancingLine BalancingLine Balancing

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A B CD

EF G

Task PredecessorsTime

(minutes)

A Shape dough None 2

B Add pizza sauce A 1

C Add cheese B 2

D Add sausage C 0.75

E Add pepperoni C 1

F Package pizza D, E 1.5

G Label package F 0.5

Total Time: 8.75

Line balancingLine balancing

1) Takt time: maximum allowable cycle time at each work station. Takt time= available production time per day/output needed per day

1) Example: demand =200 working 8 hours per day

1) Takt time = 480 mins/ 200 =2.4 minutes/ station or pizza

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Line balancingLine balancing

2) Theoretical minimum number of station= total of task time/ takt time

N= (2+1+2+.75+1+1.5+.5)/2.4 mins = 3.7 = 4 stations

Note: actual stations needed is 5, why?

3) Efficiency=[(total task time/(number of actual work station)(takt time)] * 100

[(2+1+2+.75+1+1.5+.5)/(5 stations)(2.4)]*100 =73%

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Break Even AnalysisBreak Even Analysis

5–5–2828Figure 5-4

Break Even PointBreak Even Point

A firm has variable costs of per unit of $3 and annual fixed costs of $30,000. What is the break-even point if the sales prices is 8$ per unit

Total Revenue = Total Cost

TR = $8 * volume and TC = $30,000 + $3 * volume

$8 * volume = $30,000 + $3 * volume

$5 * volume = $30,000

volume = 6,000 units per year

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Chapter 5 homework problemsChapter 5 homework problemsChapter 5 homework problemsChapter 5 homework problems

• Do problems 2 on page 149

• Do problems below

• The owner of Old-fashioned berry pies is contemplating adding a new line of pies, which requires leasing cost of $6,000 per month. Variable cost would be $2.0 and retail price would be $7.0. ( refer to next page for problems)

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Chapter 5 homework problemsChapter 5 homework problemsChapter 5 homework problemsChapter 5 homework problems

1) How many pies should be sold to break even?

2) What would the profit be if 1,000 pies are sold?

3) How many pies should be sold to realize a profit of $4,000?

4) If 2,000 can be sold, and a profit target is $5,000, what price should be charged ?

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