Processes, Technology, and CapacityProcesses, Technology, and Capacity

Operations Management - 5th EditionOperations Management - 5th Edition

Chapter 6Chapter 6

Roberta Russell & Bernard W. Taylor, IIIRoberta Russell & Bernard W. Taylor, III

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Process PlanningProcess Planning

Process A group of related tasks with specific inputs and

outputs Process design

Tasks need to be done and coordinated among functions, people, and organizations

Process planning Converts designs into workable instructions for

manufacture or delivery Process strategy

An organization’s overall approach for physically producing goods and services

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Process Strategy Defines Its …Process Strategy Defines Its …

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

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Make or Buy Decisions

CostCost CapacityCapacity Quality Quality

SpeedSpeed ReliabilityReliability ExpertiseExpertise

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Sourcing Continuum

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

Arms-Length Relationship

(short-term contract or

single purchasingdecision)

Vertical Integration

(100% ownership)

Joint Venture(equity partner)

Strategic Alliance

(long-term supplier contract;

collaborative relationship)

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Process Selection

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

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PROJECTPROJECT BATCHBATCH

Types of Processes

Type of product

UniqueMade-to-

order(customized)

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

Type of customer

One-at-a-time

Few individual

customers

MASSMASS

Made-to- stock

(standardized )

Mass

market

CONTCONT..

Commodity

Mass

market

Product demand Infrequent Fluctuates Stable Very stable

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PROJECTPROJECT BATCHBATCH

Types of Processes (cont.)

Demand volume

Very low Low to medium

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

No. of different products

Infinite variety

Many, varied

MASSMASS

High

Few

CONTCONT..

Very high

Very few

Production system

Long-term project

Discrete, job shops

Repetitive, assembly

lines

Continuous, process

industries

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PROJECTPROJECT BATCHBATCH

Types of Processes (cont.)

Equipment Varied General-purpose

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

Primary type of work

Specialized contracts

Fabrication

MASSMASS

Special-purpose

Assembly

CONTCONT..

Highly automated

Mixing, treating, refining

Worker skills

Experts, crafts-

persons

Wide range of skills

Limited range of

skills

Equipment monitors

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PROJECTPROJECT BATCHBATCH

Types of Processes (cont.)

Advantages Custom work, latest technology

Flexibility, quality

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

Dis-advantages

Non-repetitive, small customer base, expensive

Costly, slow,

difficult to

manage

MASSMASS

Efficiency,

speed,

low cost

Capital

investment;

lack of

responsiveness

CONTCONT..

Highly efficient,

large capacity,

ease of control

Difficult to change,

far-reaching errors,

limited variety

ExamplesConstruction, shipbuilding, spacecraft

Machine shops,

print shops,

bakeries,

education

Automobiles,

televisions,

computers,

fast food

Paint, chemicals, foodstuffs

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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

Is price times volume sold Profit

Difference between total revenue and total cost

Process Selection with Process Selection with Break-Even AnalysisBreak-Even Analysis

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Process Selection with Process Selection with Break-Even Analysis (cont.)Break-Even Analysis (cont.)

Total cost Total cost = fixed cost + total variable cost= fixed cost + total variable costTC = TC = ccff + + vcvcvv

Total revenue =Total revenue = volume x price volume x priceTR = TR = vpvp

Profit Profit = total revenue - total cost= total revenue - total costZ = TR – TC = Z = TR – TC = vpvp - ( - (ccff + + vcvcvv))

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Process Selection with Process Selection with Break-Even Analysis (cont.)Break-Even Analysis (cont.)

Solving for Break-Even Volume

TRTR = TC= TCvpvp = = ccff + + vcvcvv

vpvp - - vcvcvv = = ccff

vv((p - cp - cvv)) = = ccff

vv ==

ccff

p p -- c cvv

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Break-Even Analysis Break-Even Analysis (p. 228)(p. 228)

Fixed costFixed cost = = ccff = $2,000 = $2,000

Variable costVariable cost = = ccvv = $5 per raft = $5 per raft

PricePrice = = pp = $10 per raft = $10 per raft

Break-even point isBreak-even point is

v v = = = 400 rafts= = = 400 raftsccff

p p - - ccvv

20002000

10 - 510 - 5

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Break-Even Analysis: GraphBreak-Even Analysis: Graph

Total cost line

Total revenue

line

Break-even point400 Units

$3,000 —

$2,000 —

$1,000 —

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Break Even Analysis ExampleBreak Even Analysis Example

You want to start your own business while in You want to start your own business while in college. Your business plan involves writing college. Your business plan involves writing term papers for students at other schools. As term papers for students at other schools. As such, you must invest in procurement of a such, you must invest in procurement of a domain name and a web hosting service domain name and a web hosting service contract. A one-year contract for both the contract. A one-year contract for both the domain name and hosting service costs $400. domain name and hosting service costs $400. You plan to charge $25 for each term paper You plan to charge $25 for each term paper you write. You estimate that research for each you write. You estimate that research for each paper costs $5. What volume of demand over paper costs $5. What volume of demand over the next year do you need in order to break the next year do you need in order to break even?even?

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Process SelectionProcess Selection

Break-even analysis can be used to help Break-even analysis can be used to help guide your decision between several guide your decision between several different alternativesdifferent alternatives

Suppose you have the data for two Suppose you have the data for two different processes – when should you different processes – when should you choose “A” versus “B”?choose “A” versus “B”?

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Process Selection Process Selection (p. 229)(p. 229)

Below 2,667, choose ABelow 2,667, choose AAbove 2,667, choose BAbove 2,667, choose B

$2,000 + $5$2,000 + $5vv = $10,000 + $2= $10,000 + $2vv$3$3vv = $8,000= $8,000

vv = 2,667 rafts= 2,667 rafts

Process AProcess A Process BProcess B

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Process Process Selection: Selection: GraphGraph

Example 4.2Example 4.2

| | | |1000 2000 3000 4000 Units

$20,000 —

$15,000 —

$10,000 —

$5,000 —

Total cost of process A

Total cost of process B

Choose process A

Choose process B

Point of indifference = 2,667 Units

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Process Selection: Point of Process Selection: Point of IndifferenceIndifference

Your roommate seems interested in your Your roommate seems interested in your business plan and suggests she could help business plan and suggests she could help you out. You have also thought about farming you out. You have also thought about farming everything out and simply being the middle everything out and simply being the middle man. Now you must choose between these 3 man. Now you must choose between these 3 plans. You still plan to charge $25 for each plans. You still plan to charge $25 for each term paper delivered. If you bring your term paper delivered. If you bring your roommate in as a partner, the fixed cost drops roommate in as a partner, the fixed cost drops to $200, but the variable costs increases to to $200, but the variable costs increases to $10. If you farm everything out, you have no $10. If you farm everything out, you have no fixed cost and the variable cost is $20. What fixed cost and the variable cost is $20. What are the points of indifference?are the points of indifference?

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Process Plans

Set of documents that detail manufacturing and service delivery specifications Assembly charts Operations sheets Quality-control check-sheets

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Process Analysis

Process flowcharts Symbolic representation of processes Incorporate

Nonproductive activities (inspection, transportation, delay, storage)

Productive activities (operations)

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Common Flowchart Common Flowchart SymbolsSymbols

Terminal State (Start / End)Terminal State (Start / End)

ProcessProcess

DecisionDecision

DataData

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Place order

Drink

Eat salad or soup

Eat dinner

Receives check

Gives payment to waiter

Collect change, leave tip

Fill in tip amount

Give order to waiter

Prepare dinner order

Prepare soup or salad order

Give order to waiter

Is order complete?

Give soup or salad order to chef

Give dinner order to chef

Get drinks for customer

Deliver salad or soup order to customer

Deliver dinner to customer

Deliver check to customer

Receive payment for meal

Cash or Credit?

Bring change to customer

Run credit card through

Return credit slip to customer

Collect tip

YY

NN

CreditCredit

CashCash

CustomerCustomer WaiterWaiter Salad Chef Salad Chef Dinner Chef Dinner Chef

A Process Map of

Restaurant Service

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Service Blueprintfor an InstallmentLending 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

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Process Innovation

Breakthrough Breakthrough ImprovementImprovement

Continuous improvement Continuous improvement refines the breakthroughrefines the breakthrough

Continuous improvement activities Continuous improvement activities peak; time to reengineer processpeak; time to reengineer process

Total redesign of a process for breakthrough

improvements

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From Function to Process

Ma

nu

fact

uri

ng

Acc

ou

ntin

g

Sa

les

Pu

rch

asi

ng

Product Development

Order Fulfillment

Supply Chain Management

Customer Service

FunctionFunction ProcessProcess

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StrategicDirectives

Goals for Process Performance

Pilot Studyof New Design

DetailedProcess Map

High - levelProcess map

GoalsMet?GoalsMet?

InnovativeIdeas

InnovativeIdeas Design

PrinciplesDesign

Principles

ModelValidation

ModelValidation

CustomerRequirements

CustomerRequirements

KeyPerformance

Measures

KeyPerformance

Measures

Full Scale Implementation

Baseline DataBaseline Data

BenchmarkData

BenchmarkData

No Yes

Process Innovation

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Principles for Redesigning Processes

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

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Principles for Redesigning Processes (cont.)

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

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Techniques for Generating Innovative Ideas

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

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Techniques for Generating Innovative Ideas (cont.)

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

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Technology Decisions

Financial justification of technology Purchase cost Operating Costs Annual Savings Revenue Enhancement Replacement Analysis Risk and Uncertainty Piecemeal Analysis

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Components of e-Manufacturing

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A Technology Primer

Computer-aided design (CAD)

Group technology (GT)

Computer-aided engineering (CAE)

Collaborative product commerce (CPC)

Computer-aided design (CAD)

Group technology (GT)

Computer-aided engineering (CAE)

Collaborative product commerce (CPC)

Creates and communicates designs electronically

Classifies designs into families for easy retrieval and modification

Tests functionality of CAD designs electronically

Facilitates electronic communication and exchange of information among designers and suppliers

Product Technology

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Product data management (PDM)

Product life cycle management (PLC)

Product definition

Product data management (PDM)

Product life cycle management (PLC)

Product definition

Keeps track of design specs and revisions for the life of the product

Integrates decisions of those involved in product development, manufacturing, sales, customer service, recycling, and disposal

Confines products “built” by customers who have selected among various options, usually from a Web site

Product Technology

A Technology Primer (cont.)

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Standard for exchange of product model data (STEP)

Computer-aided design and manufacture (CAD/CAM)

Computer aided process (CAPP)

E-procurement

Standard for exchange of product model data (STEP)

Computer-aided design and manufacture (CAD/CAM)

Computer aided process (CAPP)

E-procurement

Set standards for communication among different CAD vendors; translates CAD data into requirements for automated inspection and manufacture

Electronic link between automated design (CAD) and automated manufacture (CAM)

Generates process plans based on database of similar requirements

Electronic procurement of items from e-marketplaces, auctions, or company websites

Process Technology

A Technology Primer (cont.)

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Computer numerically control (CNC)

Flexible manufacturing system (FMS)

Robots

Conveyors

Computer numerically control (CNC)

Flexible manufacturing system (FMS)

Robots

Conveyors

Machines controlled by software code to perform a variety of operations with the help of automated tool changers; also collects processing information and quality data

A collection of CNC machines connected by an automated material handling system to produce a wide variety of parts

Manipulators that can be programmed to perform repetitive tasks; more consistent than workers but 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

Manufacturing Technology

A Technology Primer (cont.)

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Automatic guided vehicle (AGV)

Automated storage and retrieval system (ASRS)

Process Control

Computer-integrated manufacturing (CIM)

Automatic guided vehicle (AGV)

Automated storage and retrieval system (ASRS)

Process Control

Computer-integrated manufacturing (CIM)

A driverless truck that moves material along a specified path; directed by wire or tape embedded in floor or by radio frequencies; very flexible

An automated warehouse—some 26 stores high—in which items are placed in a carousel-type storage system and retrieved by fast-moving stacker cranes; controlled by computer

Continuous monitoring of automated equipment; makes real-time decisions on ongoing operation, maintenance, and quality

Automated manufacturing systems integrated through computer technology; also called e-manufacturing

Manufacturing Technology

A Technology Primer (cont.)

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Business – to –Business (B2B)

Business – to –Customer (B2C)

Internet

Intranet

Extranet

Business – to –Business (B2B)

Business – to –Customer (B2C)

Internet

Intranet

Extranet

Electronic transactions between businesses usually over the Internet

Electronic transactions between businesses and their customers usually over the Internet

A global information system of computer networks that facilitates communication and data transfer

Communication networks internal to an organization; can be password (i.e., firewall) protected sites on the Internet

Intranets connected to the Internet for shared access with select suppliers, customers, and trading partners

Information Technology

A Technology Primer (cont.)

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Bar Codes

Radio Frequency Identification tags (RFID)

Electronic data interchange (EDI)

eXtensible markup language (XML)

Enterprise resource planning (ERP)

Bar Codes

Radio Frequency Identification tags (RFID)

Electronic data interchange (EDI)

eXtensible markup language (XML)

Enterprise resource planning (ERP)

A series of vertical lines printed on most packages that identifies item and other information when read by a scanner

An integrated circuit embedded in a tag that can send and receive information; a twenty-first century bar code with read/write capabilities

A computer-to-computer exchange of business documents over a proprietary network; very expensive and inflexible

A programming language that enables computer – to - computer communication over the Internet by tagging 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

Information Technology

A Technology Primer (cont.)

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Supply chain management (SCM)

Customer relationship management (CRM)

Decision support systems (DSS)

Expert systems (ES)

Artificial intelligence (AI)

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

Information Technology

A Technology Primer (cont.)