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Processes, Technology, and Capacity
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Copyright 2006 John Wiley & Sons, Inc. 6-2
Outline
Process Planning
Process Analysis
Process Innovation
Technology Decisions
Capacity Decisions
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Copyright 2006 John Wiley & Sons, Inc. 6-3
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
Process planning converts designs into workable instructions for
manufacture or delivery Process strategy
an organizations overall approach for physicallyproducing goods and services
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Copyright 2006 John Wiley & Sons, Inc. 6-4
Process Strategy
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, andresource availability
Vertical integration extent to which firm will produce inputs and control outputsof each stage of production process
Customer involvement role of customer in production process
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Copyright 2006 John Wiley & Sons, Inc. 6-5
Make or Buy Decisions
Cost
Capacity
Quality
Speed
Reliability
Expertise
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Copyright 2006 John Wiley & Sons, Inc. 6-6
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-LengthRelationship
(short-term contractor
single purchasingdecision)
VerticalIntegration
(100%ownership)
JointVenture(equitypartner)
StrategicAlliance
(long-termsuppliercontract;
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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PROJECT BATCH
Types of Processes
Type of
product
UniqueMade-to-
order
(customized)
Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for CompetitiveAdvantage(New York:McGraw-Hill, 2001), p. 210
Type ofcustomer
One-at-a-time
Fewindividual
customers
MASS
Made-to-stock
(standardized )
Mass
market
CONT.
Commodity
Mass
market
Productdemand Infrequent Fluctuates Stable Very stable
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PROJECT BATCH
Types of Processes (cont.)
Demand
volume
Very lowLow to
medium
Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for CompetitiveAdvantage(New York:McGraw-Hill, 2001), p. 210
No. ofdifferentproducts
Infinitevariety
Many, varied
MASS
High
Few
CONT.
Very high
Very few
Productionsystem
Long-termproject
Discrete, jobshops
Repetitive,assembly
lines
Continuous,process
industries
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PROJECT BATCH
Types of Processes (cont.)
Equipment VariedGeneral-
purpose
Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for CompetitiveAdvantage(New York:McGraw-Hill, 2001), p. 210
Primarytype ofwork
Specializedcontracts
Fabrication
MASS
Special-
purpose
Assembly
CONT.
Highly
automated
Mixing,treating,refining
Workerskills
Experts,crafts-
persons
Wide rangeof skills
Limitedrange of
skills
Equipmentmonitors
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PROJECT BATCH
Types of Processes (cont.)
Advantages Custom work,latest technologyFlexibility,
quality
Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage(NewYork:McGraw-Hill, 2001), p. 210
Dis-advantages
Non-repetitive,small customerbase, expensive
Costly, slow,
difficult to
manage
MASS
Efficiency,
speed,
low cost
Capital
investment;
lack of
responsiveness
CONT.
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
Break-Even Analysis
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Process Selection with
Break-Even Analysis (cont.)
Total cost = fixed cost + total variable cost
TC = cf+ vcvTotal revenue = volume x price
TR = vp
Profit = total revenue - total costZ = TR TC = vp - (cf+ vcv)
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Process Selection with
Break-Even Analysis (cont.)
Solving for Break-Even Volume
TR = TC
vp = cf+ vcvvp - vcv = cf
v(p - cv) = cf
v = cf
p - cv
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Break-Even Analysis: Example
Fixed cost = cf= $2,000Variable cost = cv = $5 per raft
Price =p = $10 per raft
Break-even point is
v = = = 400 raftscf
p - cv2000
10 - 5
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Break-Even Analysis: Graph
Totalcostline
Totalrevenue
line
Break-even point400 Units
$3,000
$2,000
$1,000
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Process Selection
Below 2,667, choose A
Above 2,667, choose B
$2,000 + $5v = $10,000 + $2v$3v = $8,000
v = 2,667 rafts
Process A Process B
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Copyright 2006 John Wiley & Sons, Inc. 6-18
ProcessSelection:
Graph
Example 4.2
| | | |1000 2000 3000 4000 Units
$20,000
$15,000
$10,000
$5,000
Total cost ofprocess A
Total cost ofprocess B
Chooseprocess A
Chooseprocess B
Point of indifference = 2,667 Units
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Copyright 2006 John Wiley & Sons, Inc. 6-19
Process Plans
Set of documents that detail manufacturingand service delivery specifications
assembly charts
operations sheets
quality-control check-sheets
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Copyright 2006 John Wiley & Sons, Inc. 6-20
Process Analysis
Process flowcharts
Symbolic representation of processes Incorporate
nonproductive activities (inspection,transportation, delay, storage)
productive activities (operations)
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Copyright 2006 John Wiley & Sons, Inc. 6-21
Process Flowchart
Symbols
Operations
Inspection
Transportation
Delay
Storage
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Copyright 2006 John Wiley & Sons, Inc. 6-22
Step
Operation
Transport
Inspect
Delay
Storage
Distance
(feet)
Time
(min)Description
ofprocess
1
2
3
4
5
6
7
8
9
10
11
Unload apples from truck
Move to inspection stationWeigh, 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
TotalPage 1 0f 3 480
30
5
20
15
360
30
20
190 ft
20 ft
20 ft
50 ft
100 ft
Date: 9-30-02
Analyst: TLR
Location: Graves Mountain
Process: Apple Sauce
ProcessFlowchart
of AppleProcessing
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Copyright 2006 John Wiley & Sons, Inc. 6-23
Place order
Drink
Eat salad orsoup
Eat dinner
Receives check
Gives paymentto waiter
Collect change,leave tip
Fill in tipamount
Give orderto waiter
Prepare dinnerorder
Prepare soup orsalad order
Give orderto waiter
Is ordercomplete?
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 orCredit?
Bring change to customer
Run credit card through
Return credit slip to customer
Collect tip
Y
N
Credit
Cash
Customer Waiter Salad Chef Dinner Chef
A Process
Map of
Restaurant
Service
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Copyright 2006 John Wiley & Sons, Inc. 6-24
ServiceBlueprintfor anInstallmentLendingOperation
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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Copyright 2006 John Wiley & Sons, Inc. 6-25
Process Innovation
BreakthroughImprovement
Continuous improvementrefines the breakthrough
Continuous improvement activities
peak; time to reengineer process
Total redesign of
a process for
breakthrough
improvements
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Copyright 2006 John Wiley & Sons, Inc. 6-26
From Function to Process
Manufacturing
Accounting
Sales
Purchasing
Product Development
Order Fulfillment
Supply Chain Management
Customer Service
Function Process
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Copyright 2006 John Wiley & Sons, Inc. 6-27
StrategicDirectives
Goals for ProcessPerformance
Pilot Studyof New Design
DetailedProcess Map
High - levelProcess map
GoalsMet?
InnovativeIdeas Design
Principles
ModelValidation
CustomerRequirements
KeyPerformance
Measures
Full ScaleImplementation
Baseline Data
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 enterpriseexecute 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 loopsthat 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, its 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 increasecost
what would displeasethe 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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Copyright 2006 John Wiley & Sons, Inc. 6-32
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-aideddesign (CAD)
Group technology(GT)
Computer-aidedengineering (CAE)
Collaborativeproduct commerce
(CPC)
Creates and communicates designselectronically
Classifies designs into families for easyretrieval and modification
Tests functionality of CAD designselectronically
Facilitates electronic communication and
exchange of information among designersand suppliers
Product Technology
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Product datamanagement
(PDM) Product life cycle
management (PLC)
Product definition
Keeps track of design specs and revisionsfor the life of the product
Integrates decisions of those involved inproduct 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 forexchange of
product model data(STEP)
Computer-aideddesign andmanufacture(CAD/CAM)
Computer aidedprocess (CAPP)
E-procurement
Set standards for communication amongdifferent CAD vendors; translates CAD data
into requirements for automated inspectionand 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 companywebsites
Process Technology
A Technology Primer (cont.)
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Copyright 2006 John Wiley & Sons, Inc. 6-37
Computernumerically control(CNC)
Flexiblemanufacturingsystem (FMS)
Robots
Conveyors
Machines controlled by software code to perform avariety of operations with the help of automated
tool changers; also collects processing informationand quality data
A collection of CNC machines connected by anautomated material handling system to produce awide variety of parts
Manipulators that can be programmed to perform
repetitive tasks; more consistent than workers butless flexible
Fixed-path material handling; moves items along abelt 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 guidedvehicle (AGV)
Automated storageand retrieval system(ASRS)
Process Control
Computer-integratedmanufacturing (CIM)
A driverless truck that moves material along aspecified path; directed by wire or tape embeddedin floor or by radio frequencies; very flexible
An automated warehousesome 26 stores highin which items are placed in a carousel-typestorage system and retrieved by fast-movingstacker cranes; controlled by computer
Continuous monitoring of automated equipment;
makes real-time decisions on ongoing operation,maintenance, and quality
Automated manufacturing systems integratedthrough computer technology; also called e-manufacturing
Manufacturing Technology
A Technology Primer (cont.)
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Business toBusiness (B2B)
Business toCustomer (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 datainterchange (EDI)
Extensive markuplanguage (XML)
Enterpriseresource planning(ERP)
A series of vertical lines printed on most packages thatidentifies item and other information when read by ascanner
An integrated circuit embedded in a tag that can sendand receive information; a twenty-first century bar codewith read/write capabilities
A computer-to-computer exchange of businessdocuments over a proprietary network; very expensiveand inflexible
A programming language that enables computer to -
computer communication over the Internet by taggingdata before its is sent
Software for managing basic requirements of anenterprise, including sales & marketing, finance andaccounting, production & materials management, andhuman resources
Information Technology
A Technology Primer (cont.)
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Supply chainmanagement (SCM)
Customer relationshipmanagement (CRM)
Decision supportsystems (DSS)
Expert systems (ES)
Artificial intelligence(AI)
Software for managing flow of goods and informationamong a network of suppliers, manufacturers anddistributors
Software for managing interactions with customers andcompiling and analyzing customer data
An information system that helps managers makedecisions includes a quantitative modeling componentand an interactive component for what-if analysis
A computer system that uses an expert knowledge baseto diagnose or solve a problem
A field of study that attempts to replicate elements ofhuman thought in computer processes; includes expertsystems, genetic algorithms, neural networks, and fuzzylogic
Information Technology
A Technology Primer (cont.)
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Capacity Decisions
Capacity maximum
capability toproduce rated
capacity istheoretical
effectivecapacityincludesefficiencyandutilization
Capacity utilization percent of available time spend
working
Capacity efficiency how well a machine or worker
performs compared to astandard output level
Capacity load standard hours of work
assigned to a facility
Capacity load percent ratio of load to capacity
Capacity Expansion Strategies
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Capacity Expansion Strategies
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Capacity Decisions (cont.)
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 unexpectedoccurrences
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