Processes, Technology, and Capacity

Processes, Technology, and Capacity
Outline
Process Planning Process Analysis Process Innovation Technology Decisions Capacity Decisions
Copyright 2006 John Wiley & Sons, Inc.
6-2
Process 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
converts designs into workable instructions for manufacture or delivery an organizations overall approach for physically producing goods and services
Process planning
Process strategy
6-3
Process Strategy
Capital intensity
mix of capital (i.e., equipment, automation) and labor resources used in production process
ease with which resources can be adjusted in response to changes in demand, technology, products or services, and resource availability extent to which firm will produce inputs and control outputs of each stage of production process
Process flexibility
Vertical integration
Customer involvement
role of customer in production process
6-4
Make or Buy Decisions

Cost Capacity Quality Speed Reliability Expertise
6-5
Sourcing Continuum
Vertical Integration (100% ownership)
Joint Venture (equity partner)
Strategic Alliance (long-term supplier contract; collaborative relationship)
Arms-Length Relationship (short-term contract or single purchasing decision)
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
Process Selection
Projects
one-of-a-kind production of a product to customer order systems process many different jobs through the system in groups or batches produces large volumes of a standard product for a mass market used for very-high volume commodity products
Batch production
Mass production
Continuous production
6-7
Types of Processes
PROJECT
Type of product
BATCH
Made-toorder
(customized)
MASS
Made-tostock
(standardized )
CONT.
Unique
Commodity
Type of customer
One-at-atime
Few individual customers
Mass market
Mass market
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
Types of Processes (cont.)

PROJECT
Demand volume No. of different products Production system
BATCH
Low to medium
MASS
CONT.
Very low
High
Very high
Infinite variety
Many, varied
Few
Very few
Long-term project
Discrete, job shops
Repetitive, assembly lines
Continuous, process industries
6-9

PROJECT BATCH
Generalpurpose
MASS
Specialpurpose
CONT.
Highly automated Mixing, treating, refining Equipment monitors
Equipment
Varied
Primary type of work Worker skills
Specialized contracts
Fabrication
Assembly
Experts, craftspersons
Wide range of skills
Limited range of skills
6-10

PROJECT
Custom work, latest technology
BATCH
Flexibility, quality
MASS
Efficiency, speed, low cost
CONT.
Highly efficient, large capacity, ease of control Difficult to change, far-reaching errors, limited variety
Advantages
Disadvantages
Non-repetitive, small customer base, expensive
Costly, slow, difficult to manage Machine shops, print shops, bakeries, education
Capital investment; lack of responsiveness

Automobiles, televisions, computers, fast food
Examples
Construction, shipbuilding, spacecraft
Paint, chemicals, foodstuffs
6-11
Process Selection with Break-Even Analysis

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

difference between total revenue and total cost
6-12
Profit
Process Selection with Break-Even Analysis (cont.)

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
Process Selection with Break-Even Analysis (cont.)

TR = TC vp = cf + vcv vp - vcv = cf v(p - cv) = cf
cf v= p-c v
Solving for Break-Even Volume
Copyright 2006 John Wiley & Sons, Inc. 6-14
Break-Even Analysis: Example

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
Break-Even Analysis: Graph

$3,000 Total cost line
$2,000
$1,000
Total revenue line

400 Break-even point Units
6-16
Process Selection
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

$20,000
Total cost of process A Total cost of process B
Process Selection: Graph
$15,000
$10,000
$5,000
Choose process A | 1000 | 2000 | 3000
Choose process B | 4000 Units
Point of indifference = 2,667 Units Example 4.2
6-18
Process Plans
Set of documents that detail manufacturing and service delivery specifications

assembly charts operations sheets quality-control check-sheets
6-19
Process Analysis
Process flowcharts

Symbolic representation of processes Incorporate

nonproductive activities (inspection, transportation, delay, storage) productive activities (operations)
6-20
Process Flowchart Symbols

Operations Inspection
Transportation Delay
Storage
Date: 9-30-02 Analyst: TLR Operation Transport Inspect Delay Storage
Location: Graves Mountain Process: Apple Sauce Description of process Unload apples from truck Move to inspection station Distance (feet) 100 ft 30 50 ft 360 20 ft 15 20 5 20 ft 30 480 190 ft
Step
Process Flowchart of Apple Processing
3
4 5 6 7 8 9 10
Weigh, inspect, sort

Move to storage
Wait until needed

Move to peeler Apples peeled and cored Soak in water until needed Place in conveyor Move to mixing area Weigh, inspect, sort Page 1 0f 3 Total
11
Time (min)
20
6-22
Customer
Waiter
Salad Chef
Dinner Chef
Place order
Is order complete?
Y
Give soup or salad order to chef
Prepare soup or salad order Prepare dinner order
Give dinner order to chef

Drink Eat salad or soup Eat dinner Receives check Gives payment to waiter 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? Cash Credit
Give order to waiter Give order to waiter
Collect change, leave tip
Bring change to customer Run credit card through
Fill in tip amount
Return credit slip to customer

Collect tip
A Process Map of Restaurant Service

6-23
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
6-24
Process Innovation
Continuous improvement refines the breakthrough
Breakthrough Improvement
Total redesign of a process for breakthrough improvements
Continuous improvement activities peak; time to reengineer process
6-25
From Function to Process
Product Development Manufacturing Purchasing Accounting Sales
Order Fulfillment
Supply Chain Management Customer Service
Function
Process
6-26
Process Innovation
Strategic Directives Goals for Process Performance
Customer Requirements
Baseline Data Benchmark Data Innovative Ideas Design Principles Key Performance Measures
High - level Process map

Detailed Process Map Pilot Study of New Design
Model Validation
No
Goals Met?
Yes
Full Scale Implementation
6-27
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
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
6-29
Techniques for Generating Innovative Ideas

Vary the entry point to a problem
in trying to untangle fishing lines, its best to start from the fish, not the poles a previous solution to an old problem might work
Draw analogies
Change your perspective

think like a customer bring in persons who have no knowledge of process
6-30
Techniques for Generating Innovative Ideas (cont.)

Try inverse brainstorming
what would increase cost what would displease the customer

if I solve this problem, what is the next problem how would this process operate if. . .

Chain forward as far as possible
Use attribute brainstorming
our workers were mobile and flexible there were no monetary constraints we had perfect knowledge
6-31
Technology Decisions
Financial justification of technology

Purchase cost Operating Costs Annual Savings Revenue Enhancement Replacement Analysis Risk and Uncertainty Piecemeal Analysis
6-32
Components of e-Manufacturing
6-33
A Technology Primer
Product Technology
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
6-34
A Technology Primer (cont.)

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

Process Technology
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 emarketplaces, auctions, or company websites
6-36

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
Flexible manufacturing system (FMS)

Robots Conveyors
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
6-37

Manufacturing Technology
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 warehousesome 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 emanufacturing
6-38

Information Technology
Business to Business (B2B) Business to Customer (B2C) Internet Intranet
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
6-39
Extranet

Bar Codes Radio Frequency Identification tags (RFID) Electronic data interchange (EDI) Extensive 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
6-40

Supply chain management (SCM) Customer relationship management (CRM) Decision support systems (DSS) Expert systems (ES) 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
Artificial intelligence (AI)
6-41
Capacity Decisions
Capacity
Capacity utilization
maximum capability to produce
percent of available time spend working how well a machine or worker performs compared to a standard output level
Capacity efficiency
rated capacity is theoretical effective capacity includes efficiency and utilization
Capacity load
standard hours of work assigned to a facility

ratio of load to capacity
6-42
Capacity load percent
Capacity Expansion Strategies
6-43
Capacity Decisions (cont.)

Capacity increase depends on

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

Processes, Technology, and Capacity

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Processes, Technology, and Capacity

Copyright 2006 John Wiley & Sons, Inc.

a group of related tasks with specific inputs and outputs

Copyright 2006 John Wiley & Sons, Inc.

role of customer in production process

Copyright 2006 John Wiley & Sons, Inc.

Make or Buy Decisions

Copyright 2006 John Wiley & Sons, Inc.

Vertical Integration (100% ownership)

Joint Venture (equity partner)

Strategic Alliance (long-term supplier contract; collaborative relationship)

Arms-Length Relationship (short-term contract or single purchasing decision)

Copyright 2006 John Wiley & Sons, Inc.

Copyright 2006 John Wiley & Sons, Inc.

Few individual customers

Copyright 2006 John Wiley & Sons, Inc.

Types of Processes (cont.)

Discrete, job shops

Repetitive, assembly lines

Continuous, process industries

Copyright 2006 John Wiley & Sons, Inc.

Types of Processes (cont.)

Primary type of work Worker skills

Wide range of skills

Limited range of skills

Copyright 2006 John Wiley & Sons, Inc.

Types of Processes (cont.)

Non-repetitive, small customer base, expensive

Capital investment; lack of responsiveness

Construction, shipbuilding, spacecraft

Paint, chemicals, foodstuffs

Copyright 2006 John Wiley & Sons, Inc.

Process Selection with Break-Even Analysis

constant regardless of the number of units produced

vary with the volume of units produced

price at which an item is sold

is price times volume sold

Copyright 2006 John Wiley & Sons, Inc.

Process Selection with Break-Even Analysis (cont.)

Copyright 2006 John Wiley & Sons, Inc.

Process Selection with Break-Even Analysis (cont.)

Break-Even Analysis: Example

Copyright 2006 John Wiley & Sons, Inc.

Break-Even Analysis: Graph

Total revenue line

Copyright 2006 John Wiley & Sons, Inc.

Below 2,667, choose A Above 2,667, choose B

Total cost of process A Total cost of process B

Process Selection: Graph

Choose process A | 1000 | 2000 | 3000

Choose process B | 4000 Units

Point of indifference = 2,667 Units Example 4.2

Copyright 2006 John Wiley & Sons, Inc.

assembly charts operations sheets quality-control check-sheets

Copyright 2006 John Wiley & Sons, Inc.

Symbolic representation of processes Incorporate

Copyright 2006 John Wiley & Sons, Inc.

Process Flowchart Symbols

Date: 9-30-02 Analyst: TLR Operation Transport Inspect Delay Storage

Process Flowchart of Apple Processing

Weigh, inspect, sort

Wait until needed