OPERATIONS MANAGEMENT MMS I By Suresh Dadlani Email: sdadlani@sltnet.lk Mobile:9820293399 October3,2010

PRODUCT PROCESSES OPERATION MANAGEMENT HR FACILITIES MATERIALS LAYOUT SCHEDULING PLANNING

Operations Management Product Definition Process Product: The end result of the manufacturing process to be offered to the market place to satisfy a need or a want.

Objectives Define product design and its strategic impact on organization Describe steps to develop a product design Using break-even analysis as a tool in selecting between product alternatives Identity production process differences and their characteristics Describe the steps used in process design selection Understand how to use a process flow chart Understand current technology advancements and how they impact process design Understand issues impacting the design of service operations October3,2010

Product & Service Design Product design must support the business strategy Product design defines a product’s characteristics - Appearance, materials, dimensions, tolerances, performance standards Service industries must define both the service and concept - Physical elements, aesthetic & psychological benefits e.g. promptness, friendliness, ambiance Product and service design must match the needs and preferences of the targeted customer group October3,2010

Product & Service Design Steps Step 1 - Idea Development - Someone thinks of a need and a product/service design to satisfy it e.g. customers, marketing, engineering, competitors, benchmarking, reverse engineering Step 2 - Product Screening - Every business needs a formal/structured evaluation process e.g. fit with facility and labor skills, size of market, contribution margin, break-even analysis, return on sales Step 3 – Preliminary Design and Testing - Technical specifications are developed, prototypes built, testing starts Step 4 – Final Design - Final design based on test results, facility, equipment, material, & labor skills defined, suppliers identified October3,2010

Designing Services Service Characteristics Pure services Quasi-Manufacturing Mixed services Service Package The physical goods The sensual benefits The psychological benefits Differing designs Substitute technology for people Get customer involved High customer attention October3,2010

Design/Process Highlights Product and process design must support business and operation strategy Product steps include idea generation, product screening, preliminary design and testing, and final design Break-even analysis is a tool used to screen processes Process designs range from project to batch to line to continuous Product design and process selection decisions are linked Process flow charts can be a useful tool in process re-design Product and process design can be significantly enhanced by proper application of new technology Designing service processes produce intangible products with more customer contact October3,2010

Product design and process selection Benchmarking Idea development Technology push Marketing pull Product screening Marketing criteria Financial criteria Operational criteria Preliminary design and testing Prototyping Trial marketing Final design Reverse Engineering Concurrent Engineering Value Engineering Breakeven Analysis Remanufacturing

Break-Even Analysis: Graphical Approach Compute quantity of goods that must be sold to break-even Compute total revenue at an assumed selling price Compute fixed cost and variable cost for several quantities Plot the total revenue line and the total cost line Intersection is break-even Sensitivity analysis can be done to examine changes in all of the assumptions made October3,2010

Breakeven Analysis Fixed cost Variable cost Total cost Revenue Cost Used to determine volume needed to cover total costs Often first step in product development process Assumes linear costs Volume

Breakeven Example A firm is considering marketing a new toothbrush. The firm expects to sell each toothbrush for Rs.2.10 The per brush cost of material, labor and overhead equals Rs.1.45 The required investment in plant and equipment is Rs.50,000. How many brushes must be sold for the firm to breakeven? If only 65,000 brushes are expected to sell, what must the variable costs be in order to allow the firm to breakeven?

Other Factors Impacting Design Need to Design for Manufacturing – DFM Minimize parts Design parts for multiply applications Use modular design Avoid tools Simplify operations October3,2010

The product life cycle Sales Profit Every product and service follows a life cycle that spans: Planning Introduction Growth Maturity Decline Healthy companies manage their product and service offerings to insure a balanced portfolio Sales Dollars Profit Plan Intro Growth Mat Dec

Factor In Product Life Cycle Consider product life cycle stages Introduction Growth Maturity Decline Facility & process investment depends on life cycle © 2005 Wiley

Another Design factor-Organization Old “over-the –wall” sequential design process should not be used Each function did its work and passed it to the next function Replace with a Concurrent Engineering process All functions form a design team working together to develop specifications, involve customers early, solve potential problems, reduce costs, & shorten time to market October3,2010

CE decision-making example

Concurrent Engineering Concurrent engineering can be defined as the simultaneous development of project design functions, with open and interactive communication existing among all team members for the purposes of reducing time to market, decreasing cost, and improving quality and reliability.

Process Selection Process selection is based on five considerations Type of process; range from intermittent to continuous Degree of vertical integration Flexibility of resources Mix between capital & human resources Degree of customer contact Process types can be: Project Process Batch Process Line Process Continuous Process October3,2010

Underlying Process Relationship Between Volume and Standardization October3,2010

Differences between Intermittent and Continuous Operations © 2005 Wiley

Volume and Process Choice-Summary Low Volume typically means Project or Batch processes Less vertical integration More resource flexibility Less capital intensity Higher skilled labor More customer involvement More customized products Make or assemble to order strategy High Volume typically means Line/continuous processes More vertical integration Less resource flexibility More capital intensity More specialized labor Little to no customer involvement Standardized products Make to stock strategy October3,2010

Positioning Strategies and the Product / Process Matrix Process Focus Job Shop Large Batch Flow Pattern Assembly Line Product Focus Product Volume

The process-focused Project Shop Characteristics Makes a one-of-a-kind product (volume = 1) Uses general purpose equipment Has informal relationships with many vendors Very little vertical integration Flexible layout often with factors of production moving to job

The Job Shop Characteristics Makes many products in small volume Uses general purpose equipment Has informal relationships with vendors Very little vertical integration Departmentalized layout with chaotic flow

(Cell, Flow or Hybrid Shop) The Large Batch (Cell, Flow or Hybrid Shop) Characteristics Makes several families of products in moderate volume Uses general purpose equipment often fixtured Little vertical integration Hybrid layout with flow lines

The Assembly Line Characteristics Makes few products in large volume Uses specialized high-volume equipment Has formal relationships with vendors May use vertical integration Product-based layout with linear flow

Process Decisions Flexibility More resource flexibility & More customer involvement Flow Pattern More vertical integration & More capital intensity Efficiency Product Volume

Technology and the Product/Process Matrix Greater need for flexibility Jumbled Dominant Line Process Choice Greater need for efficiency Technology decisions tend to be long-term in nature and greatly influence which products and services a firm is capable of providing to its customers profitably. Low Medium High Product Volume

Managing the balance between efficiency and flexibility to optimize customer service performance: Product and Service Strategy Raw Materials Finished Goods Prepare Ingredients Assemble Menu Items Make to stock Raw Materials Work In Process Prepare Ingredients Assemble Menu Items Assemble to order Raw Materials Prepare Ingredients Assemble Menu Items Make to order

Process Design Tools Process flow analysis is a tool used to analyze and document the sequence of steps within a total process. Usually first step in Process Reengineering. Process Re-engineering is a structured approach used when major business changes are required as a result of: Major new products Quality improvement needed Better competitors Inadequate performance © 2005 Wiley

Facility Layout and Process Choice © 2005 Wiley

Process Performance Metrics October3,2010

Linking Design & Process Selection Organizational Decisions appropriate for different types of operations October3,2010

Intermittent VS. Repetitive Layouts October3,2010

Product and Service Strategy Options October3,2010

Process Decisions-Vertical Integration & Make or Buy Vertical integration refers to the degree a firm chooses to do processes itself- raw material to sales Backward Integration means moving closer to primary operations Forward Integration means moving closer to customers A firm’s Make-or-Buy choices should be based on the following considerations: Strategic impact Available capacity Expertise Quality considerations Speed Cost (fixed cost + variable cost)make = Cost (fixed cost + Variable cost)buy Business are trending toward less backward integration, more outsourcing October3,2010

Manufacturing Technology Decisions Simplify first then apply appropriate technology Information Technology: ERP etc. Automation Automated Material Handling: Automated guided vehicles (AGV) Automated storage & retrieval systems (AS/RS) Computer-Aided Design (CAD) software Robotics & Numerically-Controlled (NC) equipment Flexible Manufacturing Systems (FMS) Computer-Integrated Manufacturing (CIM) October3,2010

Designing for the Customer Value Analysis/Value Engineering (VA/VE) Achieve equivalent or better performance at a lower cost while maintaining all functional requirements defined by the customer. 1. Does the item have any design features that are not necessary? 2. Can two or more parts be combined into one? 3. How can we cut down the weight? 4. Are there nonstandard parts that can be eliminated? 8

Manufacturing Systems Depend on the type of Plant in which we have to Operate Factors determining place of Production Planning & Control in an Organization are: > Type of Production - Quantity of Finished Products - Regularity of manufacture > Size of Plant > Type of Industry

Manufacturing Systems Types of Production Broadly eight types, Grouped under three Heads > Job Production > Batch Production > Continuous Production

Manufacturing Systems Types of Production JOB PRODUCTION To meet specific customer requirements Quantity is small, usually “one off” or “several off” Special Projects, Models, Prototypes Large Turbo Generators, Large Engines, Boilers, Ship Building

Manufacturing Systems Types of Production JOB PRODUCTION Types of Job Production > Small numbers produced once > Small numbers produced intermittently when needed > Small number produced periodically, at known intervals

Manufacturing Systems Types of Production JOB PRODUCTION Important Points related to Job Production: - When produced once only, little scope of improvements in production techniques – intricate method studies, special tools, Jigs & Fixtures. - For repeat requirements – Tools, Gauges and other items, considered carefully, as these affect Production time and hence the costs. - Repeat orders may not require elaborate repeat planning and hence helps lowering costs due to; > Simplified Production Control > Familiarity for dispatchers & Expediters with Designs > Can take pre-emptive actions on anticipated difficulties > Scheduling is simpler, master scheduling for repeat orders at regular intervals > Possible to balance Production time and Plant Capacity

Manufacturing Systems Types of Production JOB PRODUCTION Non repetitive Job Productions – most common Hence: > Scheduling is based on assessment/estimates of Production times > Estimates are based on judgment and often on then rule of thumb and hence experience and skills of estimator plays key role > Requires frequent reviews to take into account realities affecting deliveries and costs. > As output depends on plant capacities and estimated times of jobs, it has possibilities of resulting in queues of jobs for execution and hence could affect deliveries, costs, productivity and quality due to changing schedules to meet priorities > Longer the queue , more important is to explore the ways - To increase plant capacity - To review Sales Policy - To judiciously discriminate order execution

Manufacturing Systems Types of Production Batch Production To manufacture a number of identical items, either to meet a specific order or to satisfy continuous demand. When production of a batch is terminated, the plant and equipment are available for the production of similar or other products. Policies regarding tooling, fixtures and other aids depend on quantities involved – Batch.

Manufacturing Systems Types of Production Batch Production Types of Batch Production : - Batch produced once - Batch produced repeatedly at regular intervals- need based - Batch produced periodically at known intervals

Manufacturing Systems Types of Production Batch Production Highlights/Features: - Planning & Control depend on quantities – simpler with higher volumes. - Size of the batch and Scheduling for production are critical issues. Considerations for optimal Batch size: - Set up costs - Inventory Controls/Management - Plant Capacity - Delivery requirements of batches of different products.

Manufacturing Systems Types of Production Batch Production Other Considerations for Batch sizes: - Governed by external orders, batch to suit Customers’ requirements - Plant act as Vendor in some cases - If for internal requirements, scheduling and batch size decisions are relatively simpler. Batch sizes: - Determines lengths of production run - Affects Production schedule - Affects batch size consideration of other Products - Facilities are designed as a mix of Special Purpose and/or flexible

Manufacturing Systems Types of Production Continuous Production Specialized manufacture of identical articles on which equipment is fully engaged. Associated with large quantities/high demand products Whereas in Job & Batch, Rate of Production exceeds Rate of demand, Continuous production is justified only when its Rate of Production can be sustained by the market Full advantage of repetitive operations comes in; - Design of production auxiliary aids like special tools, jigs & fixtures, Feeders, Material handling system, inspection devices, weighing systems etc.

Manufacturing Systems Types of Production Continuous Production Types of Continuous Production Systems: - Mass Production - Flow Production Difference being mainly on the kind of Product and its relation to the Plant.

Manufacturing Systems Types of Production Continuous Production Mass Production: - Large number of identical articles - Though use of advanced mechanization & tooling, the equipment need not be exclusively designed for the Product. - Plant & Equipment are flexible to produce other Products involving same/similar production processes. - Possibilities of discontinuance of certain Product lines & to change to another article, without excessive modifications in plant layout, except changes in tooling etc. Examples of facilities in Mass Production: - Mechanised press shop - Moulding facilities - Automats - Finishing shops

Manufacturing Systems Types of Production Continuous Production Flow Production : - The plant, equipment, layout are primarily designed to manufacture specific Product. - Limited flexibility in selection of Products with minor modifications in layouts or designs of models. - Most efficient in design - Less prone to human errors Examples : - Automobiles - Engines - Household items - Chemical Plants

Manufacturing Systems Types of Production Continuous Production Flow Production – Critical/Important features: - Switch over to different kind of Product requires extensive tooling, changes in layout and equipment policy - Production planning & Control is far simpler - Extensive efforts, use of best skills and experience for detailed planning before start of production, but once started scheduling and Control is simple - Output is constrained by: > Production Capacity > Production targets ( Sales requirements)

Manufacturing Systems Types of Production Constraints in maintaining particular type of Production System: - Uneven production rates , mismatch in production rates of different items - Inventory Controls - Product life cycle changes - Machine reliability - Design changes - Competition

Manufacturing Systems Size of Plants Larger the plant, more complicated are activites Issues relate to : - Planning ( Centalised/Decentralised) - Coordination between departments, high risks of lack of coordination - Man management Centralisation helps in : - Methods planning - Standardisation & Simplification of Products & Materials - Purchasing & Storing of materials - Superior coordination - Possibilities for better utilisation of facilities and past experience. - Better inventory management - Less risks of damages and obsolescence - No empire building of satellites and hence better effectiveness

Manufacturing Systems Size of Plants Too much of Centralisation may result in: - Cumbersome planning & control - Detached from reality - Slow to react - inefficiency in the system

Manufacturing Systems Type of industry It is the field in which plant specializes Classified into several ways: - Availability of kind of labor in different geographical locations - Demand of different skills - Investment policies - Materials, Processes or end products Division on the basis of materials used is not common, as usually most industries use variety of materials Classification by end Products is logical, as covers materials , methods and skills. - Complicated due to large number of Products & Plant involved with multiple Products Simpler method for classification is by process - Material Fabrication - Chemical Process etc.

Manufacturing Systems Type of industry Usually labeled according to the main activities, e.g., - Vehicles and accessories - Leather and leather goods - Textiles - Chemicals - Metal manufacture/processing - FMCG, Food, drinks etc - Pharmaceuticals

Manufacturing Systems To summarize With very few exceptions, no industry is confined to one type of production process. Batch production at some or the other stages recurs in all the industries and statistically accounts for over 60% of the sample. Batch production is more complex than Continuous Production for Production Planning & Control. Continuous Production carries highest risks together with highest efficiencies. Job production requires highest skills but provides lower efficiencies. Plant utilization is the highest in Continuous Production followed by the Batch Production with lowest for Job Production The best flexibility in operation lies in Batch Production process and lowest with Continuous Process. Highest skills requirements for Job Process and generally lower in Continuous. High level of specialised skills required in setting up Continuous process plant, as - Mistakes costs recurring losses - Expensive to correct Capacity Planning and increasing capacity for Batch Process is quicker, including though sub contracting.

Manufacturing Systems Food for thought Continuing with the Case of Tata Motors in hand, please decide on which MAKE or BUY decision and in case of MAKE which manufacturing process will you follow for; Assembly line of the vehicles Engines Gear box Dashboard Wind screen Horn Battery Music system Gear and Accelerator pedals Steering lever hand grip And reasoning for the same.

Manufacturing Systems Food for thought Will you maintain the decision for ever or will you have review based on some factors/milestones in future. What major factors will you consider on going against the Buy decisions, for some of the items, where though Making may be more expensive than Buying. Each Group to submit their recommendations in one page today at 1240pm, with R. Nos written in the sheet The Group to present the approach, strategy with logical reasons next week. Each group will have 10 min to present incl discussion, Q&A and this will mean 10 marks for the internal out of 40 for the Semester.