1. Principles of Operations Management
Process & Capacity Design Chapter 5

2. 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

3. 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
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4. 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
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5. 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

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

7. 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

8. 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%)

9. 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

10. 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

11. 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

12. Thinking Challenge: Compare & Contrast
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13. Technology Alternatives
General purpose machines
Numerical control machines
Process control
Robots
Automated guided vehicles (AGV)
Flexible manufacturing systems (FMS)
Computer-integrated mfg. (CIM)

14. General Purpose Machines (GPM)
Machines capable of performing many different operations
Manually operated
Found in process-focused facilities
Low volume production
Manual Lathe
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15. 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

16. 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
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Process limits

17. Robots Machines that hold, move, or grasp items
Perform monotonous or dangerous tasks
Used when speed, accuracy, or strength are needed
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18. Automated Guided Vehicles (AGV)
Material handling machines
Used to move parts & equipment in manufacturing
May be used to deliver mail & meals in service facilities
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19. Flexible Manufacturing Systems (FMS)
Using automated machines (DNC) & materials handling equipment together
Often connected to centralized computer
Also called automated work cell

20. 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

21. 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

22. Factors Affecting Process Alternatives
These factors reduce the number of alternatives!
Production flexibility
Product volume
Product variety
Technology
Cost
Human resources
Quality
Reliability
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23. 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)

24. 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

25. 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)

26. 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)

27. 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
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28. Utilization
Measure of planned or actual capacity usage of a facility, work center, or machine

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

30. 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?
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31. 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?
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32. 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?
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33. Capacity Planning Process

34. 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

35. 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