Copyright 2011 John Wiley & Sons, Inc.

Chapter 5

Operations Management

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Lecture Outline

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• What is Operations Management?

• Product Design

• Process Design

• Facility Layout

• Line Balancing in Product Layouts

• Process Automation

Copyright 2011 John Wiley & Sons, Inc.

What is Operations Management?

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Operations management (OM) is the business function responsible for producing a company’s goods and services in an efficient and cost-effective way

• Transformation Role– OM converts inputs into finished goods and services

Copyright 2011 John Wiley & Sons, Inc.

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OM Decisions

• Product Design– designing unique product features

• Process Design– creating the production process

• Quality Management– establishing and implementing quality standards

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OM Decisions Continued

• Inventory Management– amounts of inventory to carry and when to order

• Facility Layout– physical layout of the production facility

• Facility Location– best location for facilities

• Scheduling– schedules for workers, machines, and facilities

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Manufacturing vs. Service Operations

• Manufacturing Operations– physical goods that can be stored

– most customers have no direct contact with the operation

• Service Operations– intangible products that cannot be produced

ahead of time– customer present during creation of the service

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Evolution of Operations

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Operations has evolved from a strictly production function to having a strategic organizational role.

Impact on the Organization

Operations must work with other business functions such as:

• Marketing– help operations understand what customers want

– must understand operations’ capabilities

• Sourcing– help operations understand material availability

– must understand operational requirements

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Impact on SCM

Each company depends on other members of its supply chain

• Potential problems:

– upstream delays or delivery of poor quality materials can delay production

– sales suffer from downstream delays or products damaged in transport

– poorly managed operations pass excess costs to other members of the supply chain

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What is Product Design?

• Product design is the process of specifying the exact features and characteristics of a company’s product

• Product characteristics are translated into measureable dimensions the production process can use to produce the product

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Designing Services

Service design requires the design of the entire service concept

• Three elements to design:

– physical element of the service

– psychological benefits

– sensual elements

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Product Design Process

1. Idea Development– marketing, competitors, early supplier

involvement, reverse engineering

2. Product Screening– viability of the product

3. Preliminary Design and Testing– performance specifications translated into

technical specifications

4. Final Design– specifications translated into production

instructions5-13Copyright 2011 John Wiley & Sons, Inc.

Break-Even Analysis

Break-even analysis can evaluate the success of a new product at the product screening stage

• Break-Even Point

– quantity that need to be sold to cover costs

– occurs when total cost = revenue

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Break-Even Analysis Continued

Total Cost = Fixed Costs + Variable Costs

Total Cost = F + VC Q

where: F = fixed cost

VC = variable cost per unit

Q = # of units sold

Revenue = SP Q

where: SP = selling price per unit

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Set Total Cost = Total Revenue

F + VC Q = SP Q

Solve for Q:

QBE =

where QBE is the break-even quantity

F

SP - VC

Break-Even Analysis Continued

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Break-Even Example

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Shu Chen plans a new line of children’s scarves. She estimates a variable cost of $25 per scarf and a fixed cost per year of $15,000. If the selling price is $30, how many scarves must she sell to break even? If Shu sells 4,000 scarves at the $30 price, what will be the contribution to profit?

Break-Even Example QBE

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Break-Even Quantity:

QBE =

QBE = = 3,000 scarves

F

SP - VC

$15,000

$30 - $25

Break-Even Example Profit

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Profit = Total Revenue – Total Cost

= (SP) Q – [F + (VC) Q]

= $30 (4,000) – [$15,000 + $25 (4000)]

= $5,000

Factors Impacting ProductDesign Decisions

• Design for Manufacture (DFM)– design simplification and standardization

• Product Life Cycle– introduction, growth, maturity, decline

• Concurrent Engineering– all functions work together simultaneously

• Remanufacturing – components of old products used in new ones

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What is Process Design?

Process design involves developing a production process that can create the exact product that has been designed

• Two categories of Processes:

– Intermittent

– Repetitive

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Intermittent Processes

• Characteristics

– Large variety of products

– Products with different processing requirements

– Low volume

– Resources are grouped by function

– Labor intensive5-23Copyright 2011 John Wiley & Sons, Inc.

Intermittent Processes Continued

• Characteristics Continued:

– Highly skilled workers

– Workers perform variety of tasks

– General purpose equipment

– Flexible

– Tend to produce products in early stages of life cycle

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Repetitive Processes

• Characteristics:

– One (or a few) standardized products

– High volume

– Resources organized in a line flow

– Tend to produce products in later stages of life cycle

– More capital-intensive rather than labor-intensive

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Continuum of Process Types

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Continuum of Process Types

• Project Processes– unique products made to customer specifications

• Batch Processes– small quantities produced in batches

• Line Processes– large volume of standardized product for mass

production

• Continuous Processes– very high volume of fully standardized product

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Rapid Manufacturing

Rapid Manufacturing uses technology to make products to order when needed, exactly where they are needed

• Relies on:

– Three-dimensional (3D) printing technologies

– Additive layer manufacturing (ALM)

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Facility Layout

• Facility layout is the physical arrangement of all resources within a facility

• Poor facility layouts are one of the most significant contributors to inefficiency and increased production cost

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Facility Layout Types

• Fixed Position Layout

• Process Layout

• Product Layout

• Cellular Layout

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Fixed Position Layout

– used when a product cannot be moved during production

– all resources come together at the product’s location

– challenge to schedule the timing and sequencing of different tasks

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Process Layout

– intermittent processes

– resources grouped by process

– products take different routes through the operation

– design so cost of moving materials is minimized

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Process Layout Continued

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Product Layout

– repetitive processes

– resources arranged in sequence

– every product is almost exactly the same

– processing times are minimized

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Product Layout Continued

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Cellular Layout

– attempt to combine efficiency of product layouts and flexibility of process layouts

– items grouped into a product family according to processing requirements

– workstations arranged in small assembly lines called cells

– each cell is dedicated to a product family

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Designing Product Layouts

• Product Layout Objective – determine the sequence of tasks to be

performed by each workstation

• Consider

– order of tasks

– time required to perform each task

– speed of the production process

• Process is called Line Balancing5-37Copyright 2011 John Wiley & Sons, Inc.

Line Balancing Steps

1. Identify Task Times and Precedence Relationships

2. Determine Cycle Time

3. Determine Theoretical Minimum Number of Workstations

4. Assign Tasks to Workstations

5. Compute Efficiency5-38Copyright 2011 John Wiley & Sons, Inc.

Task Times and Precedence Relationships

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Task Times and Precedence Relationships Continued

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Determine Cycle Time

• Cycle Time– amount of time allowed to complete work at

each station

Cycle Time =

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available production time per day

desired number of units per day

Determine Cycle Time

• Pizza Operation– runs 8 hours per day = 28,800 seconds– want to produce 300 pizzas per day

Cycle Time =

Cycle Time == 96 seconds

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available production time per day

desired number of units per day

28,800 seconds/day

300 pizzas/day

N =

N =

N = 2.55 stations = 3 stations

Sum of Task Times

Cycle Time

Theoretical Minimum # Workstations (N)

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245 seconds

96 seconds per station

Assign Tasks to Workstations

Make sure the sum of task times at any station does not exceed the cycle time

There are rules that can be followed if there is a choice of tasks to assign to a station

• Longest Task Time Rule– select the task with the longest task time

• Number of Followers Rule– select the task with the most number of followers

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Efficiency =

=

= 63.8%

Sum of Task Times

# Workstations x Cycle Time

Compute Efficiency

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245 seconds

4 stations x 96 seconds/station

Process Automation

• Advantages:

– repetition without worker fatigue

– enables physically dangerous jobs

– production consistency

– enhances speed

– provides greater accuracy

– enables handling of jobs beyond human capabilities

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Process Automation

• Disadvantages:

– initial cost can be very high

– many tasks cannot be automated

– faster automated processing speeds can result in bottlenecks when working in unison with human processing

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Automation in Services

– provides consistency

– requires fewer employees

– can impact customer’s perception of service quality

– needs to be tied to the target market

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Review

1. Operations Management (OM), or “operations,” is the business function responsible for producing a company’s goods and services, in an efficient and cost effective way. It is the function responsible for transforming a company’s inputs, obtained by the sourcing function, into the finished goods or services, which marketing sells to final customers.

2. The operations function performs the transformational role of the organization. It has evolved from being a strictly production function to having a strategic organizational role.

3. OM involves making many varied decisions. These include product and process design, quality management, inventory management, facility layout and location, and scheduling. Competitive bidding and negotiation are two different methods used to reach agreement and develop contracts with potential suppliers.

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Review Continued

4. Product design is the process of deciding on specific characteristics and features of products. Process design is developing the process needed to produce the product.

5. Layout planning is deciding on the best physical arrangement of centers of economic activity. There are four types of layouts: fixed position, process, product, cellular.

6. Line balancing is the process of designing product layouts. It involves assigning tasks to workstations considering their precedence relationships, cycle time, and task times.

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