1. Copyright 2006 John Wiley & Sons, Inc. Beni Asllani University of Tennessee at Chattanooga Processes, Technology, and Capacity Operations Management - 5 th Edition Chapter 6 Roberta Russell & Bernard W. Taylor, III

2. Copyright 2006 John Wiley & Sons, Inc.6-2 Lecture Outline   Process Planning   Process Analysis   Process Innovation   Technology Decisions   Capacity Decisions

3. 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 organization’s overall approach for physically producing goods and services

4. 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, and resource availability   Vertical integration extent to which firm will produce inputs and control outputs of each stage of production process   Customer involvement role of customer in production process

5. Copyright 2006 John Wiley & Sons, Inc.6-5 Make or Buy Decisions  Cost  Capacity  Quality  Speed  Reliability  Expertise

6. Copyright 2006 John Wiley & Sons, Inc.6-6 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

7. Copyright 2006 John Wiley & Sons, Inc.6-7 PROJECTBATCH Types of Processes Type of product* Unique Made-to- order (customized) Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage (New York:McGraw-Hill, 2001), p. 210 Type of customer One-at-a- time Few individual customers MASS Made-to- stock (standardized ) Mass market CONT. Commodity Mass market Product demand* InfrequentFluctuatesStableVery stable

8. Copyright 2006 John Wiley & Sons, Inc.6-8 PROJECTBATCH Types of Processes (cont.) Demand volume* Very low Low to medium Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage (New York:McGraw-Hill, 2001), p. 210 No. of different products (variety)* Infinite variety Many, varied MASS High Few CONT. Very high Very few Production system Long-term project Discrete, job shops Repetitive, assembly lines Continuous, process industries

9. Copyright 2006 John Wiley & Sons, Inc.6-9 PROJECTBATCH Types of Processes (cont.) Equipment* Varied General- purpose Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage (New York:McGraw-Hill, 2001), p. 210 Primary type of work Specialized contracts Fabrication MASS Special- purpose Assembly CONT. Highly automated Mixing, treating, refining Worker skills* Experts, crafts- persons Wide range of skills Limited range of skills Equipment monitors

10. Copyright 2006 John Wiley & Sons, Inc.6-10 PROJECTBATCH Types of Processes (cont.) Advantages* Custom work, latest technology Flexibility, quality Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage (New York:McGraw-Hill, 2001), p. 210 Dis- advantages * Non-repetitive, small customer base, 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 Examples Construction, shipbuilding, spacecraft Machine shops, print shops, bakeries, education Automobiles, televisions, computers, fast food Paint, chemicals, foodstuffs

11. Copyright 2006 John Wiley & Sons, Inc.6-11 Mass Customization  What is it?  Product/service implications Modular product design Modular product design  Process implications Flexible mfg tech. & org design Flexible mfg tech. & org design  Customer/suppliers implications Integrated supply chain Integrated supply chain Link to the customers Link to the customers

12. Copyright 2006 John Wiley & Sons, Inc.6-12 Mass Customization  Benefits Higher customer service Higher customer service Lower cost of production and delivery Lower cost of production and delivery Inventory, design/R&D, plant, production Inventory, design/R&D, plant, production Higher Flexibility and faster response Higher Flexibility and faster response Higher innovation rate Higher innovation rate

13. Copyright 2006 John Wiley & Sons, Inc.6-13 Focusing on Mass Customization  Dell  Mattel  Levi Straus  Morpheus Tech.  Cductive.com  Artuframe.com  Acumines.com  NewEdge.com

14. Copyright 2006 John Wiley & Sons, Inc.6-14   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

15. Copyright 2006 John Wiley & Sons, Inc.6-15 Break-Even Analysis: Graph Total cost line Total revenue line Break-even point 400Units $3,000 — $2,000 — $1,000 —

16. Copyright 2006 John Wiley & Sons, Inc.6-16 Process Selection: Graph Example 4.2 |||| 1000200030004000Units $20,000 — $15,000 — $10,000 — $5,000 — Total cost of process A Total cost of process B Choose process A Choose process B Point of indifference = 2,667 Units

17. Copyright 2006 John Wiley & Sons, Inc.6-17 Process Analysis   Process flowcharts Symbolic representation of processes Incorporate nonproductive activities (inspection, transportation, delay, storage) productive activities (operations)

18. Copyright 2006 John Wiley & Sons, Inc.6-18 Technology Decisions   Financial justification of technology Purchase cost Operating Costs Annual Savings Revenue Enhancement Replacement Analysis Risk and Uncertainty Piecemeal Analysis

19. Copyright 2006 John Wiley & Sons, Inc.6-19 Components of e-Manufacturing

20. Copyright 2006 John Wiley & Sons, Inc.6-20 A Technology Primer   Computer-aided design (CAD)   Computer numerically control (CNC)   Flexible manufacturing system (FMS)   Robots   Computer-integrated manufacturing (CIM)   Computer-aided design (CAD)   Computer numerically control (CNC)   Flexible manufacturing system (FMS)   Robots   Computer-integrated manufacturing (CIM)  Creates and communicates designs electronically  Machines controlled by software code to perform a variety of operations with the help of automated tool changers; also collects processing information 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  Automated manufacturing systems integrated through computer technology; also called e- manufacturing

21. Copyright 2006 John Wiley & Sons, Inc.6-21 Capacity  Importance of capacity decision  Capacity unit of measurement Output Output Input Input State of the system State of the system

22. Copyright 2006 John Wiley & Sons, Inc.6-22 Capacity Decisions   Capacity maximum capability to produce rated capacity is theoretical effective capacity includes efficiency and utilization   Capacity utilization percent of available time spend working   Capacity efficiency how well a machine or worker performs compared to a standard output level   Capacity load standard hours of work assigned to a facility   Capacity load percent ratio of load to capacity

23. Copyright 2006 John Wiley & Sons, Inc.6-23 Capacity Expansion Strategies

24. Copyright 2006 John Wiley & Sons, Inc.6-24 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 unexpected occurrences

25. Copyright 2006 John Wiley & Sons, Inc.6-25 Economies of Scale   it costs less per unit to produce high levels of output fixed costs can be spread over a larger number of units production or operating costs do not increase linearly with output levels quantity discounts are available for material purchases operating efficiency increases as workers gain experience

26. Copyright 2006 John Wiley & Sons, Inc.6-26 Diseconomies of Scale   Occur above a certain level of output Diseconomies of Distribution Diseconomies of Bureaucracy Diseconomies of Confusion Diseconomies of Vulnerability

27. Copyright 2006 John Wiley & Sons, Inc.6-27 Best Operating Level for a Hotel