Processes, Technology, and CapacityProcesses, Technology, and Capacity
Operations Management - 5th EditionOperations Management - 5th Edition
Chapter 6Chapter 6
Roberta Russell & Bernard W. Taylor, IIIRoberta Russell & Bernard W. Taylor, III
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Process PlanningProcess 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
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Process Strategy Defines Its …Process Strategy Defines Its …
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
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Make or Buy Decisions
CostCost CapacityCapacity Quality Quality
SpeedSpeed ReliabilityReliability ExpertiseExpertise
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Sourcing Continuum
Source: Adapted from Robert Hayes, Gary Pisano, David Upton, and Steven Wheelwright, Operations Strategy and Technology: Pursuing
the Competitive Edge (Hoboken, NJ: 2005), p. 120
Arms-Length Relationship
(short-term contract or
single purchasingdecision)
Vertical Integration
(100% ownership)
Joint Venture(equity partner)
Strategic Alliance
(long-term supplier contract;
collaborative relationship)
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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
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PROJECTPROJECT BATCHBATCH
Types of Processes
Type of product
UniqueMade-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
MASSMASS
Made-to- stock
(standardized )
Mass
market
CONTCONT..
Commodity
Mass
market
Product demand Infrequent Fluctuates Stable Very stable
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PROJECTPROJECT BATCHBATCH
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
Infinite variety
Many, varied
MASSMASS
High
Few
CONTCONT..
Very high
Very few
Production system
Long-term project
Discrete, job shops
Repetitive, assembly
lines
Continuous, process
industries
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PROJECTPROJECT BATCHBATCH
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
MASSMASS
Special-purpose
Assembly
CONTCONT..
Highly automated
Mixing, treating, refining
Worker skills
Experts, crafts-
persons
Wide range of skills
Limited range of
skills
Equipment monitors
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PROJECTPROJECT BATCHBATCH
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
MASSMASS
Efficiency,
speed,
low cost
Capital
investment;
lack of
responsiveness
CONTCONT..
Highly efficient,
large capacity,
ease of control
Difficult to change,
far-reaching errors,
limited variety
ExamplesConstruction, shipbuilding, spacecraft
Machine shops,
print shops,
bakeries,
education
Automobiles,
televisions,
computers,
fast food
Paint, chemicals, foodstuffs
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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 Process Selection with Break-Even AnalysisBreak-Even Analysis
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Process Selection with Process Selection with Break-Even Analysis (cont.)Break-Even Analysis (cont.)
Total cost Total cost = fixed cost + total variable cost= fixed cost + total variable costTC = TC = ccff + + vcvcvv
Total revenue =Total revenue = volume x price volume x priceTR = TR = vpvp
Profit Profit = total revenue - total cost= total revenue - total costZ = TR – TC = Z = TR – TC = vpvp - ( - (ccff + + vcvcvv))
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Process Selection with Process Selection with Break-Even Analysis (cont.)Break-Even Analysis (cont.)
Solving for Break-Even Volume
TRTR = TC= TCvpvp = = ccff + + vcvcvv
vpvp - - vcvcvv = = ccff
vv((p - cp - cvv)) = = ccff
vv ==
ccff
p p -- c cvv
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Break-Even Analysis Break-Even Analysis (p. 228)(p. 228)
Fixed costFixed cost = = ccff = $2,000 = $2,000
Variable costVariable cost = = ccvv = $5 per raft = $5 per raft
PricePrice = = pp = $10 per raft = $10 per raft
Break-even point isBreak-even point is
v v = = = 400 rafts= = = 400 raftsccff
p p - - ccvv
20002000
10 - 510 - 5
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Break-Even Analysis: GraphBreak-Even Analysis: Graph
Total cost line
Total revenue
line
Break-even point400 Units
$3,000 —
$2,000 —
$1,000 —
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Break Even Analysis ExampleBreak Even Analysis Example
You want to start your own business while in You want to start your own business while in college. Your business plan involves writing college. Your business plan involves writing term papers for students at other schools. As term papers for students at other schools. As such, you must invest in procurement of a such, you must invest in procurement of a domain name and a web hosting service domain name and a web hosting service contract. A one-year contract for both the contract. A one-year contract for both the domain name and hosting service costs $400. domain name and hosting service costs $400. You plan to charge $25 for each term paper You plan to charge $25 for each term paper you write. You estimate that research for each you write. You estimate that research for each paper costs $5. What volume of demand over paper costs $5. What volume of demand over the next year do you need in order to break the next year do you need in order to break even?even?
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Process SelectionProcess Selection
Break-even analysis can be used to help Break-even analysis can be used to help guide your decision between several guide your decision between several different alternativesdifferent alternatives
Suppose you have the data for two Suppose you have the data for two different processes – when should you different processes – when should you choose “A” versus “B”?choose “A” versus “B”?
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Process Selection Process Selection (p. 229)(p. 229)
Below 2,667, choose ABelow 2,667, choose AAbove 2,667, choose BAbove 2,667, choose B
$2,000 + $5$2,000 + $5vv = $10,000 + $2= $10,000 + $2vv$3$3vv = $8,000= $8,000
vv = 2,667 rafts= 2,667 rafts
Process AProcess A Process BProcess B
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Process Process Selection: Selection: GraphGraph
Example 4.2Example 4.2
| | | |1000 2000 3000 4000 Units
$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
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Process Selection: Point of Process Selection: Point of IndifferenceIndifference
Your roommate seems interested in your Your roommate seems interested in your business plan and suggests she could help business plan and suggests she could help you out. You have also thought about farming you out. You have also thought about farming everything out and simply being the middle everything out and simply being the middle man. Now you must choose between these 3 man. Now you must choose between these 3 plans. You still plan to charge $25 for each plans. You still plan to charge $25 for each term paper delivered. If you bring your term paper delivered. If you bring your roommate in as a partner, the fixed cost drops roommate in as a partner, the fixed cost drops to $200, but the variable costs increases to to $200, but the variable costs increases to $10. If you farm everything out, you have no $10. If you farm everything out, you have no fixed cost and the variable cost is $20. What fixed cost and the variable cost is $20. What are the points of indifference?are the points of indifference?
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Process Plans
Set of documents that detail manufacturing and service delivery specifications Assembly charts Operations sheets Quality-control check-sheets
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Process Analysis
Process flowcharts Symbolic representation of processes Incorporate
Nonproductive activities (inspection, transportation, delay, storage)
Productive activities (operations)
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Common Flowchart Common Flowchart SymbolsSymbols
Terminal State (Start / End)Terminal State (Start / End)
ProcessProcess
DecisionDecision
DataData
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Place order
Drink
Eat salad or soup
Eat dinner
Receives check
Gives payment to waiter
Collect change, leave tip
Fill in tip amount
Give order to waiter
Prepare dinner order
Prepare soup or salad order
Give order to waiter
Is order complete?
Give soup or salad order to chef
Give dinner order to chef
Get drinks for customer
Deliver salad or soup order to customer
Deliver dinner to customer
Deliver check to customer
Receive payment for meal
Cash or Credit?
Bring change to customer
Run credit card through
Return credit slip to customer
Collect tip
YY
NN
CreditCredit
CashCash
CustomerCustomer WaiterWaiter Salad Chef Salad Chef Dinner Chef Dinner Chef
A Process Map of
Restaurant Service
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Service Blueprintfor an InstallmentLending Operation
Source: Lynn Shostack, “Service Positioning through Structural Change,” Journal of Marketing 51 (January 1987), p. 36. Reprinted with permission by the American Marketing Association
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Process Innovation
Breakthrough Breakthrough ImprovementImprovement
Continuous improvement Continuous improvement refines the breakthroughrefines the breakthrough
Continuous improvement activities Continuous improvement activities peak; time to reengineer processpeak; time to reengineer process
Total redesign of a process for breakthrough
improvements
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From Function to Process
Ma
nu
fact
uri
ng
Acc
ou
ntin
g
Sa
les
Pu
rch
asi
ng
Product Development
Order Fulfillment
Supply Chain Management
Customer Service
FunctionFunction ProcessProcess
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StrategicDirectives
Goals for Process Performance
Pilot Studyof New Design
DetailedProcess Map
High - levelProcess map
GoalsMet?GoalsMet?
InnovativeIdeas
InnovativeIdeas Design
PrinciplesDesign
Principles
ModelValidation
ModelValidation
CustomerRequirements
CustomerRequirements
KeyPerformance
Measures
KeyPerformance
Measures
Full Scale Implementation
Baseline DataBaseline Data
BenchmarkData
BenchmarkData
No Yes
Process Innovation
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Principles for Redesigning Processes
Remove waste, simplify, and consolidate similar activities
Link processes to create value Let the swiftest and most capable enterprise
execute the process Flex process for any time, any place, any way Capture information digitally at the source and
propagate it through process
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Principles for Redesigning Processes (cont.)
Provide visibility through fresher and richer information about process status
Fit process with sensors and feedback loops that can prompt action
Add analytic capabilities to process Connect, collect, and create knowledge around
process through all who touch it Personalize process with preferences and
habits of participants
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Techniques for Generating Innovative Ideas
Vary the entry point to a problem in trying to untangle fishing lines, it’s best to start
from the fish, not the poles Draw analogies
a previous solution to an old problem might work Change your perspective
think like a customer bring in persons who have no knowledge of
process
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Techniques for Generating Innovative Ideas (cont.)
Try inverse brainstorming what would increase cost what would displease the customer
Chain forward as far as possible if I solve this problem, what is the next problem
Use attribute brainstorming how would this process operate if. . .
our workers were mobile and flexible there were no monetary constraints we had perfect knowledge
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Technology Decisions
Financial justification of technology Purchase cost Operating Costs Annual Savings Revenue Enhancement Replacement Analysis Risk and Uncertainty Piecemeal Analysis
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A Technology Primer
Computer-aided design (CAD)
Group technology (GT)
Computer-aided engineering (CAE)
Collaborative product commerce (CPC)
Computer-aided design (CAD)
Group technology (GT)
Computer-aided engineering (CAE)
Collaborative product commerce (CPC)
Creates and communicates designs electronically
Classifies designs into families for easy retrieval and modification
Tests functionality of CAD designs electronically
Facilitates electronic communication and exchange of information among designers and suppliers
Product Technology
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Product data management (PDM)
Product life cycle management (PLC)
Product definition
Product data management (PDM)
Product life cycle management (PLC)
Product definition
Keeps track of design specs and revisions for the life of the product
Integrates decisions of those involved in product development, manufacturing, sales, customer service, recycling, and disposal
Confines products “built” by customers who have selected among various options, usually from a Web site
Product Technology
A Technology Primer (cont.)
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Standard for exchange of product model data (STEP)
Computer-aided design and manufacture (CAD/CAM)
Computer aided process (CAPP)
E-procurement
Standard for exchange of product model data (STEP)
Computer-aided design and manufacture (CAD/CAM)
Computer aided process (CAPP)
E-procurement
Set standards for communication among different CAD vendors; translates CAD data into requirements for automated inspection and manufacture
Electronic link between automated design (CAD) and automated manufacture (CAM)
Generates process plans based on database of similar requirements
Electronic procurement of items from e-marketplaces, auctions, or company websites
Process Technology
A Technology Primer (cont.)
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Computer numerically control (CNC)
Flexible manufacturing system (FMS)
Robots
Conveyors
Computer numerically control (CNC)
Flexible manufacturing system (FMS)
Robots
Conveyors
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
Fixed-path material handling; moves items along a belt or overhead chain; “reads” packages and diverts them to different directions; can be very fast
Manufacturing Technology
A Technology Primer (cont.)
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Automatic guided vehicle (AGV)
Automated storage and retrieval system (ASRS)
Process Control
Computer-integrated manufacturing (CIM)
Automatic guided vehicle (AGV)
Automated storage and retrieval system (ASRS)
Process Control
Computer-integrated manufacturing (CIM)
A driverless truck that moves material along a specified path; directed by wire or tape embedded in floor or by radio frequencies; very flexible
An automated warehouse—some 26 stores high—in which items are placed in a carousel-type storage system and retrieved by fast-moving stacker cranes; controlled by computer
Continuous monitoring of automated equipment; makes real-time decisions on ongoing operation, maintenance, and quality
Automated manufacturing systems integrated through computer technology; also called e-manufacturing
Manufacturing Technology
A Technology Primer (cont.)
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Business – to –Business (B2B)
Business – to –Customer (B2C)
Internet
Intranet
Extranet
Business – to –Business (B2B)
Business – to –Customer (B2C)
Internet
Intranet
Extranet
Electronic transactions between businesses usually over the Internet
Electronic transactions between businesses and their customers usually over the Internet
A global information system of computer networks that facilitates communication and data transfer
Communication networks internal to an organization; can be password (i.e., firewall) protected sites on the Internet
Intranets connected to the Internet for shared access with select suppliers, customers, and trading partners
Information Technology
A Technology Primer (cont.)
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Bar Codes
Radio Frequency Identification tags (RFID)
Electronic data interchange (EDI)
eXtensible markup language (XML)
Enterprise resource planning (ERP)
Bar Codes
Radio Frequency Identification tags (RFID)
Electronic data interchange (EDI)
eXtensible markup language (XML)
Enterprise resource planning (ERP)
A series of vertical lines printed on most packages that identifies item and other information when read by a scanner
An integrated circuit embedded in a tag that can send and receive information; a twenty-first century bar code with read/write capabilities
A computer-to-computer exchange of business documents over a proprietary network; very expensive and inflexible
A programming language that enables computer – to - computer communication over the Internet by tagging data before its is sent
Software for managing basic requirements of an enterprise, including sales & marketing, finance and accounting, production & materials management, and human resources
Information Technology
A Technology Primer (cont.)
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Supply chain management (SCM)
Customer relationship management (CRM)
Decision support systems (DSS)
Expert systems (ES)
Artificial intelligence (AI)
Supply chain management (SCM)
Customer relationship management (CRM)
Decision support systems (DSS)
Expert systems (ES)
Artificial intelligence (AI)
Software for managing flow of goods and information among a network of suppliers, manufacturers and distributors
Software for managing interactions with customers and compiling and analyzing customer data
An information system that helps managers make decisions includes a quantitative modeling component and an interactive component for what-if analysis
A computer system that uses an expert knowledge base to diagnose or solve a problem
A field of study that attempts to replicate elements of human thought in computer processes; includes expert systems, genetic algorithms, neural networks, and fuzzy logic
Information Technology
A Technology Primer (cont.)