2. © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Chapter 4 Processes and Technology

3. Ch 6 - 2 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Process Strategy Overall approach to producing goods & services Defines: –capital intensity –process flexibility –vertical integration –customer involvement

4. Ch 2 - 16 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Processes & Technology Project –one-time production of product to customer order Batch production –process many jobs at same time in batch Mass production –produce large volumes of standard product for mass market Continuous processes –very high volume commodity product

5. Ch 2 - 17 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Product-Process Matrix Volume Low High Projects Batch production Mass production Continuous production Standardization

6. Ch 2 - 17 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Product-Process Matrix Labor Intensity Low High Professional Service Shop Mass Service Factory Customization

7. Ch 6 - 4 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Project BatchMass Continuous Product Unique Made to order Made to stock Commodity Customer SinglyFew individualsMass marketMass market Demand InfrequentFluctuatesStableVery stable Volume Very lowLow to medHighVery high Variety InfiniteMany, highLowVery low System Long-termIntermittentFlow linesProcess industry Equipment VariedGeneral-purp.Special-purp.Highly automated Type of work ContractsFabricationAssemblyMix, treat, refine Skills ExpertsWide rangeLimited rangeEquipment craftspeople monitors Advantages Custom workFlexibilityEfficiencyHighly efficient qualitysped, low costlarge capacity Disadv.NonrepeatingCostly, slowCapital invest.Difficult to change Example ConstructionPrinting, bakeryAutos, TV’sPaint, oil, food

8. Ch 6 - 12 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Process Planning Make-or-buy decisions Process selection Specific equipment selection Process plans Process analysis

9. Ch 6 - 13 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Make-Or-Buy Decisions 1. Cost 2. Capacity 3. Quality 4. Speed 5. Reliability 6. Expertise

10. Ch 6 - 14 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Specific Equipment Selection 1. Purchase cost 2. Operating cost 3. Annual savings 4. Revenue enhancement 5. Replacement analysis 6. Risk and uncertainty 7. Piecemeal analysis

11. Ch 6 - 5 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Process Selection With Break-Even Analysis c f = fixed cost v = volume c v = variable cost per unit p =price per unit

12. Ch 6 - 6 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Solving For Break-Even Volume

13. Ch 6 - 7 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Break-Even Example Fixed cost = c f =$2,000 Variable cost = c v = $5 per raft Price = $10 per raft

14. Ch 6 - 8 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Break-Even Graph

15. Ch 6 - 9 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Choosing Between Two Processes $3v = $8,000 v = 2,667 rafts $2,000 + $5v = $10,000 + $2v Process AProcess B Below 2,667, choose A Above 2,667, choose B

16. Ch 6 - 10 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Graphical Solution To Process Selection A B

17. Ch 6 - 11 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Point Of Indifference Volume where cost of A = cost of B Rule for choosing process: –Above point of indifference choose process with lowest variable cost –Below point of indifference choose process with lowest fixed cost