Principles of Operations Management Process & Capacity Design Chapter 5

Learning Objectives Describe the types of process strategies Compare technological alternatives State how to select a process strategy Define capacity Explain how to manage existing capacity

McDonald’s over 95 billion served Thinking Challenge Consider McDonald’s restaurants. Fact #1: Franchisees of McDonald’s have to go to ‘Hamburger U.’ They protest, ‘But, I’ve been in the restaurant business 20 years – I know the restaurant business!’ ‘Yes, but you don’t know OUR business.’ McDonald’s over 95 billion served © 1984-1994 T/Maker Co.

McDonald’s over 95 billion served Thinking Challenge Fact #2: A typical McDonald’s restaurant is run by unskilled teenagers, whose mothers can’t even get them to make their beds in the morning. What do these facts & your own experiences suggest about McDonald’s operations? McDonald’s over 95 billion served © 1984-1994 T/Maker Co. Alone Group Class

Process Decisions Involve determining how to produce a product or provide a service Objective Meet or exceed customer requirements Meet cost & managerial goals Has long-run effects Product & volume flexibility Costs & quality

Types of Process Strategies The strategies are often classified as: Process-Focused Repetitive-Focused Product-Focused Continuum

Process-Focused Strategy Facilities are organized by process Similar processes are together Example: All drill presses are together Low volume, high variety products ‘Jumbled’ flow Other names Intermittent process Job shop Product A Oper. 1 2 3 Product B

Process-Focused Strategy Pros & Cons Advantages Greater product flexibility More general purpose equipment Lower initial capital investment Disadvantages More highly trained personnel More difficult production planning & control Low equipment utilization (5% to 25%)

Product-Focused Strategy Facilities are organized by product High volume, low variety products Other names Line flow production Continuous production Where found Discrete unit manufacturing Continuous process manufacturing Products A & B Oper. 1 2 3

Product-Focused Strategy Pros & Cons Advantages Lower variable cost per unit Lower but more specialized labor skills Easier production planning & control Higher equipment utilization (70% to 90%) Disadvantages Lower product flexibility More specialized equipment Usually higher capital investment

Repetitive-Focused Strategy Facilities often organized by assembly lines Characterized by modules Parts & assemblies made previously Modules combined for many output options Other names Assembly line Production line

Thinking Challenge: Compare & Contrast Alone Group Class

Technology Alternatives General purpose machines Numerical control machines Process control Robots Automated guided vehicles (AGV) Flexible manufacturing systems (FMS) Computer-integrated mfg. (CIM)

General Purpose Machines (GPM) Machines capable of performing many different operations Manually operated Found in process-focused facilities Low volume production Manual Lathe © 1995 Corel Corp. Router © 1995 Corel Corp.

Numerical Control (NC) Used in computer- aided mfg. (CAM) Using computers to program, direct, & control machines Numerical control (NC) machine Repeat operations by reading punch paper or magnetic tape Computer numerical control (CNC) machine Programmable by operator at machine Has own memory Direct numerical control (DNC) machine Connected to computer running many machines

Process Control Actual avg. Planned avg. Use of information technology to control physical process Example: Measure thickness of wallboard Found in product & repetitive-focused facilities © 1995 Corel Corp. Process limits

Robots Machines that hold, move, or grasp items Perform monotonous or dangerous tasks Used when speed, accuracy, or strength are needed © 1984-1994 T/Maker Co.

Automated Guided Vehicles (AGV) Material handling machines Used to move parts & equipment in manufacturing May be used to deliver mail & meals in service facilities © 1984-1994 T/Maker Co.

Flexible Manufacturing Systems (FMS) Using automated machines (DNC) & materials handling equipment together Often connected to centralized computer Also called automated work cell

Computer-Integrated Manufacture (CIM) Mfg. system that combines CAM with engineering (CAD), & production & inventory control Computer-aided design (CAD) creates code to run DNC machines CAM

Production Process & Technology Alternatives # Different Products or Parts High General Purpose, NC, CNC CIM Flexible Mfg. System Dedicated Automation Low Low High Volume of Products or Parts

Factors Affecting Process Alternatives These factors reduce the number of alternatives! Production flexibility Product volume Product variety Technology Cost Human resources Quality Reliability © 1984-1994 T/Maker Co.

Process Investment Evaluation Long-term factors Fit with company strategic plan Competitive advantage Product life cycle Operating factors (e.g., scrap, training) Financial return Break-even analysis Cash flow analysis (IRR, NPV)

Break-Even Analysis Technique for evaluating process & equipment alternatives Objective: Find the point ($ or units) at which total cost equals total revenue Assumptions Revenue & costs are related linearly to volume All information is known with certainty No time value of money

Facility Planning Facility planning answers: How much long-range capacity is needed When more capacity is needed Where facilities should be located (location) How facilities should be arranged (layout)

Capacity Maximum output of a system in a given period (general definition) May be units, hours, dollars, sq. ft. etc. Example: Tons of steel per month Effective capacity: Maximum output given standards, product mix, etc. Rated capacity: Maximum usable output given utilization & efficiency RC = (Capacity)(Utilization)(Efficiency)

Capacity Definition Thinking Challenge How would you define capacity for the following firms (e.g., steel mill, tons of steel per day): Beer brewery Auto plant Restaurant Warehouse Grocery store Alone Group Class

Utilization Measure of planned or actual capacity usage of a facility, work center, or machine

Efficiency Measure of how well a facility or machine is performing when used

Utilization Example You’re owner of a small florist shop. Normally, your shop is open 8 hr./day Monday to Friday, & 4 hr. on Saturday. During the summer, you’re closed on Monday & Saturday. What is your capacity, expected capacity, & utilization during the summer? © 1995 Corel Corp.

Utilization Thinking Challenge You’re operations manager of a paper company. Given the expensive machinery, full capacity is 3 shifts, 7 days per week. Since demand is slow, you’ve scheduled 3 shifts, 6 days per week. What is your capacity, expected capacity, & utilization? © 1984-1994 T/Maker Co. © 1995 Corel Corp. Alone Group Class

Rated Capacity Thinking Challenge The standard rate of output of a paper mfg. machine is 1800 ft./min. Records show that the actual average rate is 1710 ft./min. Present utilization is 85.7%. The plant was designed to make 92,000 tons of paper per year. What is the rated capacity? © 1984-1994 T/Maker Co. © 1995 Corel Corp. Alone Group Class

Capacity Planning Process

Managing Existing Capacity Demand Management Capacity Management Vary prices Vary promotion Change lead times (e.g., backorders) Offer complementary products Vary staffing Change equipment & processes Change methods Redesign the product for faster processing

Conclusion Described the types of process strategies Compared technological alternatives Stated how to select a process strategy Defined capacity Explained how to manage existing capacity