Long Night Is Coming.pdf

Designing Operations

PowerPoint presentation to accompany Heizer, Render, Munson Operations Management, Twelfth Edition, Global Edition Principles of Operations Management, Tenth Edition, Global Edition

PowerPoint slides by Jeff Heyl

Copyright © 2017 Pearson Education, Ltd.

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Outline

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► ►

Design for goods and services Process strategy and capacity planning Layout design

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Goods and Services Selection ►

► ►

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Organizations exist to provide goods or services to society Great products are the key to success Top organizations typically focus on core products Customers buy satisfaction, not just a physical good or particular service Fundamental to an organization's strategy with implications throughout the operations function

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Goods and Services Selection ►

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Limited and predictable life cycles requires constantly looking for, designing, and developing new products Utilize strong communication among customer, product, processes, and suppliers New products generate substantial revenue

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Product Decision The objective of the product decision is to develop and implement a product strategy that meets the demands of the marketplace with a competitive advantage

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Product Strategy Options ►

Differentiation ►

►

Low cost ►

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Shouldice Hospital Taco Bell

Rapid response ►

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Toyota

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Product Life Cycles ►

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May be any length from a few days to decades The operations function must be able to introduce new products successfully

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Product Life Cycle $

Cost of development and production

Sales revenue

Profit

Loss

Loss

Introduction

Growth

Maturity

Decline

Figure 5.2

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Generating New Products 1. Understanding the customer 2. Economic change 3. Sociological and demographic change

4. Technological change 5. Political and legal change

6. Market practice, professional standards, suppliers, distributors Copyright © 2017 Pearson Education, Ltd.

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Product Development Stages Concept Figure 5.3

Feasibility Customer Requirements Functional Specifications

Scope of product development team

Product Specifications Design Review

Scope for design and engineering teams

Test Market Introduction Evaluation

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Quality Function Deployment ►

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Quality function deployment (QFD) ►

Determine what will satisfy the customer

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Translate those customer desires into the target design

House of quality ►

Utilize a planning matrix to relate customer wants to how the firm is going to meet those wants

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Quality Function Deployment 1. Identify customer wants 2. Identify how the good/service will satisfy customer wants

3. Relate customer wants to product hows 4. Identify relationships between the firm’s hows 5. Develop our importance ratings 6. Evaluate competing products 7. Compare performance to desirable technical attributes Copyright © 2017 Pearson Education, Ltd.

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QFD House of Quality Interrelationships

What the customer wants

Target values

How to satisfy customer wants

Relationship matrix

Competitive assessment

Customer importance ratings

Weighted rating

Technical evaluation Copyright © 2017 Pearson Education, Ltd.

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House of Quality Example Your team has been charged with designing a new camera for Great Cameras, Inc. The first action is to construct a House of Quality

© 2014 Pearson Education, Inc.

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Interrelationships

House of Quality Example What the Customer Wants

Relationship Matrix

Analysis of Competitors

How to Satisfy Customer Wants

Technical Attributes and Evaluation

What the customer wants

Customer importance rating (5 = highest)

Lightweight

3

Easy to use

4

Reliable

5

Easy to hold steady

2

High resolution

1

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Interrelationships

House of Quality Example What the Customer Wants

Relationship Matrix

Analysis of Competitors

How to Satisfy Customer Wants

© 2014 Pearson Education, Inc.

Ergonomic design

High number of pixels

Auto exposure

Auto focus

Aluminum components

Low electricity requirements

Technical Attributes and Evaluation

How to Satisfy Customer Wants

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Interrelationships

House of Quality Example What the Customer Wants

High relationship

Relationship Matrix

Analysis of Competitors

How to Satisfy Customer Wants

Technical Attributes and Evaluation

Medium relationship Low relationship

Lightweight

3

Easy to use

4

Reliable

5

Easy to hold steady

2

High resolution

1

Relationship matrix © 2014 Pearson Education, Inc.

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Interrelationships

House of Quality Example What the Customer Wants

Relationship Matrix

Analysis of Competitors

How to Satisfy Customer Wants

Technical Attributes and Evaluation

© 2014 Pearson Education, Inc.

Ergonomic design

High number of pixels

Auto exposure

Auto focus

Aluminum components

Low electricity requirements

Relationships between the things we can do

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Interrelationships

House of Quality Example What the Customer Wants

Relationship Matrix

Analysis of Competitors

How to Satisfy Customer Wants

Technical Attributes and Evaluation

Lightweight

3

Easy to use

4

Reliable

5

Easy to hold steady

2

High resolution

1

Our importance ratings

22

9

27

27

32

25

Weighted rating © 2014 Pearson Education, Inc.

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Interrelationships

How to Satisfy Customer Wants

What the Customer Wants

Relationship Matrix

Analysis of Competitors

House of Quality Example Company A

Company B

Technical Attributes and Evaluation

Lightweight

3

G

P

Easy to use

4

G

P

Reliable

5

F

G

Easy to hold steady

2

G

P

High resolution

1

P

P

How well do competing products meet customer wants

Our importance ratings © 2014 Pearson Education, Inc.

22

5 5 - 20

Interrelationships

How to Satisfy Customer Wants

What the Customer Wants

Relationship Matrix

Analysis of Competitors

House of Quality Example

0.5 A

75%

2’ to ∞

2 circuits

Failure 1 per 10,000

Panel ranking

Technical Attributes and Evaluation

Company A

0.7

60%

yes

1

ok

G

Company B

0.6

50%

yes

2

ok

F

Us

0.5

75%

yes

2

ok

G

Target values (Technical attributes)

Technical evaluation

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Company B

Company A

Ergonomic design

High number of pixels

Lightweight

3

G P

Easy to use

4

G P

Reliable

5

F G

Easy to hold steady

2

G P

High resolution

1

P

Panel ranking

Failure 1 per 10,000

2’ to ∞

75%

0.5 A

Target values (Technical attributes)

Technical evaluation

P

22 9 27 27 32 25

2 circuits

Our importance ratings

© 2014 Pearson Education, Inc.

Auto exposure

Auto focus

Aluminum components

Completed House of Quality

Low electricity requirements

House of Quality Example

Company A

0.7 60% yes

1

ok

G

Company B

0.6 50% yes

2

ok

F

Us

0.5 75% yes

2

ok

G

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House of Quality Sequence Deploying resources through the organization in response to customer requirements Quality plan

Customer requirements

House 1

House 2

House 3

Production process

Design characteristics

Design characteristics

Specific components

Specific components

Production process

House 4

Figure 5.4 Copyright © 2017 Pearson Education, Ltd.

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Organizing for Product Development ►

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Traditionally – distinct departments ►

Duties and responsibilities are defined

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Difficult to foster forward thinking

A Champion ►

Product manager drives the product through the product development system and related organizations

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Organizing for Product Development ►

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Team approach ►

Cross functional – representatives from all disciplines or functions

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Product development teams, design for manufacturability teams, value engineering teams

Japanese “whole organization” approach ►

No organizational divisions

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Organizing for Product Development ►

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Product development teams ►

Market requirements to product success

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Cross functional teams often involving vendors

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Open, highly participative environment

Concurrent engineering ►

Simultaneous performance of product development stages

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Product Development Continuum ►

Product life cycles are becoming shorter and the rate of technological change is increasing

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Developing new products faster can result in a competitive advantage

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Time-based competition

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Product Development Continuum Figure 5.6

External Development Strategies Alliances Joint ventures Purchase technology or expertise by acquiring the developer

Internal Development Strategies Migrations of existing products Enhancements to existing products New internally developed products Internal Lengthy High

Cost of product development Speed of product development Risk of product development

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Shared Rapid and/ or Existing Shared 5 - 28

Product Development Continuum ►

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Purchasing technology by acquiring a firm ►

Speeds development

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Issues concern the fit between the acquired organization and product and the host

Joint Ventures ►

Both organizations learn

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Risks are shared

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Product Development Continuum ►

Alliances ►

Cooperative agreements between independent organizations

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Useful when technology is developing

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Reduces risks

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Defining a Product ►

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First definition is in terms of functions Rigorous specifications are developed during the design phase Manufactured products will have an engineering drawing Bill of material (BOM) lists the components of a product

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Monterey Jack Cheese (a) U.S. grade AA. Monterey cheese shall conform to the following requirements: (1) Flavor. Is fine and highly pleasing, free from undesirable flavors and odors. May possess a very slight acid or feed flavor. (2) Body and texture. A plug drawn from the cheese shall be reasonably firm. It shall have numerous small mechanical openings evenly distributed throughout the plug. It shall not possess sweet holes, yeast holes, or other gas holes. (3) Color. Shall have a natural, uniform, bright and attractive appearance. (4) Finish and appearance—bandaged and paraffin-dipped. The rind shall be sound, firm, and smooth providing a good protection to the cheese.

Code of Federal Regulation, Parts 53 to 109, General Service Administration

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Product Documents ►

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Engineering drawing ►

Shows dimensions, tolerances, and materials

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Shows codes for Group Technology

Bill of Material ►

Lists components, quantities and where used

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Shows product structure

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Engineering Drawings

Figure 5.8

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Bills of Material BOM for a Panel Weldment

NUMBER

DESCRIPTION

A 60-71

PANEL WELDM’T

1

A 60-7 R 60-17 R 60-428 P 60-2

LOWER ROLLER ASSM. ROLLER PIN LOCKNUT

1 1 1 1

A 60-72 R 60-57-1 A 60-4 02-50-1150

GUIDE ASSM. REAR SUPPORT ANGLE ROLLER ASSM. BOLT

1 1 1 1

A 60-73 A 60-74 R 60-99 02-50-1150

GUIDE ASSM. FRONT SUPPORT WELDM’T WEAR PLATE BOLT

1 1 1 1

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QTY

Figure 5.9 (a) 5 - 35

Bills of Material Hard Rock Cafe’s Hickory BBQ Bacon Cheeseburger

Figure 5.9 (b)

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DESCRIPTION

QTY

Bun Hamburger patty Cheddar cheese Bacon BBQ onions Hickory BBQ sauce Burger set Lettuce Tomato Red onion Pickle French fries Seasoned salt 11-inch plate HRC flag

1 8 oz. 2 slices 2 strips 1/2 cup 1 oz. 1 leaf 1 slice 4 rings 1 slice 5 oz. 1 tsp. 1 1 5 - 36

Service Design ►

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Service typically includes direct interaction with the customer Process – chain – network (PCN) analysis focuses on the ways in which processes can be designed to optimize interaction between firms and their customers

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Process-Chain-Network (PCN) Analysis

Figure 5.12 Copyright © 2017 Pearson Education, Ltd.

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Process-Chain-Network (PCN) Analysis 1. Direct interaction region includes process steps that involve interaction between participants 2. The surrogate (substitute) interaction region includes process steps in which one participant is acting on another participant’s resources 3. The independent processing region includes steps in which the supplier and/or the customer is acting on resources where each has maximum control Copyright © 2017 Pearson Education, Ltd.

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Process-Chain-Network (PCN) Analysis ▶All three regions have similar operating issues but the appropriate way of handling the issues differs across regions – service operations exist only within the area of direct and surrogate interaction

▶PCN analysis provides insight to aid in positioning and designing processes that can achieve strategic objectives

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Adding Service Efficiency ▶Service productivity is notoriously low partially because of customer involvement in the design or delivery of the service, or both ▶Complicates product design

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Adding Service Efficiency ▶Limit the options ▶Improves efficiency and ability to meet customer expectations

▶Delay customization ▶Modularization ▶Eases customization of a service

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Adding Service Efficiency ▶Automation ▶Reduces cost, increases customer service

▶Moment of truth ▶Critical moments between the customer and the organization that determine customer satisfaction

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Documents for Services ►

High levels of customer interaction necessitates different documentation

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Often explicit job instructions

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Scripts and storyboards are other techniques

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First Bank Corp. Drive-up Teller Service Guidelines • Be especially discreet when talking to the customer through the microphone.

• Provide written instructions for customers who must fill out forms you provide. • Mark lines to be completed or attach a note with instructions.

• Always say “please” and “thank you” when speaking through the microphone. • Establish eye contact with the customer if the distance allows it. • If a transaction requires that the customer park the car and come into the lobby, apologize for the inconvenience.

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Application of Decision Trees to Product Design ►

Particularly useful when there are a series of decisions and outcomes that lead to other decisions and outcomes

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Application of Decision Trees to Product Design Procedure 1. Include all possible alternatives and states of nature – including “doing nothing” 2. Enter payoffs at end of branch 3. Determine the expected value of each branch and “prune” the tree to find the alternative with the best expected value Copyright © 2017 Pearson Education, Ltd.

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Decision Tree Example (.4)

Purchase CAD

High sales

(.6) Low sales

Hire and train engineers (.4)

High sales

(.6) Low sales

Do nothing Figure 5.13 Copyright © 2017 Pearson Education, Ltd.

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Decision Tree Example (.4)

Purchase CAD

High sales

(.6) Low sales

Hire and train engineers

$2,500,000 – 1,000,000 – 500,000 $1,000,000 $800,000 – 320,000 – 500,000 – $20,000

Revenue Mfg cost ($40 x 25,000) CAD cost Net Revenue Mfg cost ($40 x 8,000) CAD cost Net loss

(.4)

High sales EMV (purchase CAD system) = (.4)($1,000,000) + (.6)(– $20,000) (.6) Low sales

Do nothing Figure 5.13 Copyright © 2017 Pearson Education, Ltd.

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Decision Tree Example (.4)

Purchase CAD $388,000

High sales

(.6) Low sales

Hire and train engineers

$2,500,000 – 1,000,000 – 500,000 $1,000,000 $800,000 – 320,000 – 500,000 – $20,000

Revenue Mfg cost ($40 x 25,000) CAD cost Net Revenue Mfg cost ($40 x 8,000) CAD cost Net loss

(.4)

High sales EMV (purchase CAD system) = (.4)($1,000,000) + (.6)(– $20,000) = $388,000 (.6) Low sales

Do nothing Figure 5.13 Copyright © 2017 Pearson Education, Ltd.

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Decision Tree Example (.4)

Purchase CAD $388,000

High sales

(.6) Low sales

Hire and train engineers $365,000 (.4)

High sales

(.6) Low sales

Do nothing $0

$2,500,000 – 1,000,000 – 500,000 $1,000,000 $800,000 – 320,000 – 500,000 – $20,000 $2,500,000 – 1,250,000 – 375,000 $875,000 $800,000 – 400,000 – 375,000 $25,000 $0 Net

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Revenue Mfg cost ($40 x 25,000) CAD cost Net Revenue Mfg cost ($40 x 8,000) CAD cost Net loss Revenue Mfg cost ($50 x 25,000) Hire and train cost Net Revenue Mfg cost ($50 x 8,000) Hire and train cost Net Figure 5.13 5 - 51

Transition to Production ►

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Know when to move to production ►

Product development can be viewed as evolutionary and never complete

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Product must move from design to production in a timely manner

Most products have a trial production period to insure producibility ►

Develop tooling, quality control, training

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Ensures successful production

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Transition to Production ►

Responsibility must also transition as the product moves through its life cycle ►

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Line management takes over from design

Three common approaches to managing transition ►

Project managers

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Product development teams

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Integrate product development and manufacturing organizations

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Process Strategy The objective is to create a process to produce offerings that meet customer requirements within cost and other managerial constraints

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Process Strategies ►

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How to produce a product or provide a service that ►

Meets or exceeds customer requirements

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Meets cost and managerial goals

Has long term effects on ►

Efficiency and production flexibility

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Costs and quality

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Process, Volume, and Variety Volume

Figure 7.1

Variety (flexibility)

Low Volume High Variety one or few units per run, (allows customization) Changes in Modules modest runs, standardized modules Changes in Attributes (such as grade, quality, size, thickness, etc.) long runs only

Repetitive Process

Process Focus projects, job shops (machine, print, hospitals, restaurants) Arnold Palmer Hospital

High Volume Mass Customization (difficult to achieve, but huge rewards) Dell Computer

Repetitive (autos, motorcycles, home appliances) Harley-Davidson

Poor Strategy (Both fixed and variable costs are high)

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Product Focus (commercial baked goods, steel, glass, beer) Frito-Lay 5 - 56

Process Strategies Four basic strategies 1. Process focus

2. Repetitive focus 3. Product focus

4. Mass customization Within these basic strategies there are many ways they may be implemented Copyright © 2017 Pearson Education, Ltd.

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Process Focus ►

Facilities are organized around specific activities or processes

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General purpose equipment and skilled personnel

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High degree of product flexibility

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Typically high costs and low equipment utilization

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Product flows may vary considerably making planning and scheduling a challenge

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Process Focus

(low-volume, high-variety, intermittent processes)

Many inputs

(surgeries, sick patients, baby deliveries, emergencies)

Many departments and many routings

Arnold Palmer Hospital

Figure 7.2(a) Copyright © 2017 Pearson Education, Ltd.

Many different outputs (uniquely treated patients) 5 - 59

Repetitive Focus ►

Facilities often organized as assembly lines

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Characterized by modules with parts and assemblies made previously

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Modules may be combined for many output options

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Less flexibility than process-focused facilities but more efficient

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Repetitive Focus

Raw materials and module inputs (multiple engine models, wheel modules)

Few modules

(modular) Harley Davidson

Figure 7.2(b) Copyright © 2017 Pearson Education, Ltd.

Modules combined for many Output options (many combinations of motorcycles) 5 - 61

Product Focus ►

Facilities are organized by product

►

High volume but low variety of products

►

Long, continuous production runs enable efficient processes

►

Typically high fixed cost but low variable cost

►

Generally less skilled labor

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Product Focus

Few inputs

(corn, potatoes, water, seasoning)

(high-volume, low-variety, continuous process)

Frito-Lay

Figure 7.2(c) Copyright © 2017 Pearson Education, Ltd.

Output variations in size, shape, and packaging (3-oz, 5-oz, 24-oz package labeled for each material) 5 - 63

Mass Customization ►

The rapid, low-cost production of goods and service to satisfy increasingly unique customer desires

►

Combines the flexibility of a process focus with the efficiency of a product focus

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Mass Customization

Many parts and component inputs (chips, hard drives, software, cases)

Many modules

(high-volume, high-variety) Dell Computer

Figure 7.2(b) Copyright © 2017 Pearson Education, Ltd.

Many output versions (custom PCs and notebooks) 5 - 65

Mass Customization ►

Imaginative product design

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Flexible process design

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Tightly controlled inventory management

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Tight schedules

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Responsive partners in the supplychain

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Capacity ►

The throughput, or the number of units a facility can hold, receive, store, or produce in a period of time

►

Determines fixed costs

►

Determines if demand will be satisfied

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Three time horizons

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Planning Over a Time Horizon Figure S7.1

Options for Adjusting Capacity

Time Horizon Long-range planning

Intermediaterange planning (aggregate planning)

Design new production processes Add (or sell existing) long-lead-time equipment Acquire or sell facilities Acquire competitors Subcontract Add or sell equipment Add or reduce shifts

Short-range planning (scheduling)

* Build or use inventory More or improved training Add or reduce personnel

*

Schedule jobs Schedule personnel Allocate machinery

Modify capacity Use capacity * Difficult to adjust capacity as limited options exist Copyright © 2017 Pearson Education, Ltd.

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Design and Effective Capacity ►

Design capacity is the maximum theoretical output of a system ►

►

Normally expressed as a rate

Effective capacity is the capacity a firm expects to achieve given current operating constraints ►

Often lower than design capacity

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Design and Effective Capacity TABLE S7.1

Capacity Measurements

MEASURE

DEFINITION

EXAMPLE

Ideal conditions exist during the time that the system is available

Machines at Frito-Lay are designed to produce 1,000 bags of chips/hr., and the plant operates 16 hrs./day. Design Capacity = 1,000 bags/hr. × 16 hrs. = 16,000 bags/day

Design capacity

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Design and Effective Capacity TABLE S7.1

Capacity Measurements

MEASURE

DEFINITION

Effective capacity

Design capacity minus lost output because of planned resource unavailability (e.g., preventive maintenance, machine setups/changeovers, changes in product mix, scheduled breaks)

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EXAMPLE Frito-Lay loses 3 hours of output per day (= 0.5 hrs./day on preventive maintenance, 1 hr./day on employee breaks, and 1.5 hrs./day setting up machines for different products). Effective Capacity = 16,000 bags/day – (1,000 bags/hr.) (3 hrs./day) = 16,000 bags/day – 3,000 bags/day = 13,000 bags/day

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Design and Effective Capacity TABLE S7.1

Capacity Measurements

MEASURE

DEFINITION

Actual output

Effective capacity minus lost output during unplanned resource idleness (e.g., absenteeism, machine breakdowns, unavailable parts, quality problems)

Copyright © 2017 Pearson Education, Ltd.

EXAMPLE On average, machines at Frito-Lay are not running 1 hr./day due to late parts and machine breakdowns. Actual Output = 13,000 bags/day – (1,000 bags/hr.) (1 hr./day) = 13,000 bags/day – 1,000 bags/day = 12,000 bags/day

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Utilization and Efficiency Utilization is the percent of design capacity actually achieved Utilization = Actual output/Design capacity

Efficiency is the percent of effective capacity actually achieved Efficiency = Actual output/Effective capacity Copyright © 2017 Pearson Education, Ltd.

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Capacity and Strategy ►

Capacity decisions impact all 10 decisions of operations management as well as other functional areas of the organization

►

Capacity decisions must be integrated into the organization’s mission and strategy

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Capacity Considerations 1. Forecast demand accurately 2. Match technology increments and sales volume 3. Find the optimum operating size (volume) 4. Build for change

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Economies and Diseconomies of Scale Average unit cost (sales per square foot)

Figure S7.2

1,300 sq ft store

Economies of scale 1,300

2,600 sq ft store

Diseconomies of scale

2,600 Number of square feet in store

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8,000 sq ft store

8,000 5 - 76 S7 - 76

Managing Demand ►

►

►

Demand exceeds capacity ►

Curtail demand by raising prices, scheduling longer lead times

►

Long-term solution is to increase capacity

Capacity exceeds demand ►

Stimulate market

►

Product changes

Adjusting to seasonal demands ►

Produce products with complementary demand patterns

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Complementary Demand Patterns

Figure S7.3

Sales in units

4,000 –

Combining the two demand patterns reduces the variation

3,000 –

Snowmobile motor sales

2,000 –

1,000 –

Jet ski engine sales

JFMAMJJASONDJFMAMJJASONDJ Time (months) Copyright © 2017 Pearson Education, Ltd.

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Tactics for Matching Capacity to Demand 1. Making staffing changes

2. Adjusting equipment ►

Purchasing additional machinery

►

Selling or leasing out existing equipment

3. Improving processes to increase throughput 4. Redesigning products to facilitate more throughput

5. Adding process flexibility to meet changing product preferences 6. Closing facilities Copyright © 2017 Pearson Education, Ltd.

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Service-Sector Demand and Capacity Management ►

Demand management ►

►

Appointment, reservations, FCFS rule

Capacity management ►

Full time, temporary, part-time staff

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Break-Even Analysis ►

►

►

Technique for evaluating process and equipment alternatives Objective is to find the point in dollars and units at which cost equals revenue Requires estimation of fixed costs, variable costs, and revenue

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Break-Even Analysis ►

Fixed costs are costs that continue even if no units are produced ►

►

Depreciation, taxes, debt, mortgage payments

Variable costs are costs that vary with the volume of units produced ►

Labor, materials, portion of utilities

►

Contribution is the difference between selling price and variable cost

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Break-Even Analysis –

Total revenue line

900 – 800 – 700 –

Cost in dollars

Total cost line

Break-even point Total cost = Total revenue

600 – 500 – Variable cost

400 –

300 – 200 – 100 – |

Figure S7.5

0

Fixed cost |

|

|

|

|

|

|

|

|

|

|

100 200 300 400 500 600 700 800 900 1000 1100 Volume (units per period)

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Break-Even Analysis Assumptions ► Costs and revenue are linear functions ►

►

We actually know these costs ►

►

Generally not the case in the real world Very difficult to verify

Time value of money is often ignored

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Break-Even Analysis BEPx = break-even point in units BEP$ = break-even point in dollars P = price per unit (after all discounts)

x = number of units produced TR = total revenue = Px F = fixed costs V = variable cost per unit TC = total costs = F + Vx

Break-even point occurs when TR = TC or Px = F + Vx Copyright © 2017 Pearson Education, Ltd.

BEPx =

F P–V

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Break-Even Analysis BEPx = break-even point in units BEP$ = break-even point in dollars P = price per unit (after all discounts) F BEP$ = BEPx P = P P–V F = (P – V)/P =

x = number of units produced TR = total revenue = Px F = fixed costs V = variable cost per unit TC = total costs = F + Vx Profit

= TR - TC = Px – (F + Vx) = Px – F – Vx = (P - V)x – F

F 1 – V/P

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5 - 86

Break-Even Example Fixed costs = $10,000 Direct labor = $1.50/unit

BEP$ =

Material = $.75/unit Selling price = $4.00 per unit

$10,000 F = 1 – [(1.50 + .75)/(4.00)] 1 – (V/P)

$10,000 = = $22,857.14 .4375

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5 - 87

Break-Even Example Fixed costs = $10,000 Direct labor = $1.50/unit

BEP$ =

Material = $.75/unit Selling price = $4.00 per unit

$10,000 F = 1 – [(1.50 + .75)/(4.00)] 1 – (V/P)

$10,000 = = $22,857.14 .4375 $10,000 F BEPx = = = 5,714 4.00 – (1.50 + .75) P–V Copyright © 2017 Pearson Education, Ltd.

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Break-Even Example 50,000 –

Revenue

Dollars

40,000 –

Break-even point

30,000 –

Total costs

20,000 –

Fixed costs 10,000 – |

|

|

|

|

|

0

2,000

4,000

6,000

8,000

10,000

Units Copyright © 2017 Pearson Education, Ltd.

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Break-Even Example Multiproduct Case Break-even F point in dollars = éæ V ö ù (BEP$) åêêç1- Pi ÷ ´ Wi úú ëè û i ø

( )

where

= variable cost per unit = price per unit = fixed costs = percent each product is of total dollar sales expressed as a decimal i = each product

V P F W

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Multiproduct Example Fixed costs = $3,000 per month ANNUAL FORECASTED SALES UNITS

PRICE

COST

Sandwich

9,000

$5.00

$3.00

Drink

9,000

1.50

.50

Baked potato

7,000

2.00

1.00

ITEM

1

2

3

4

ITEM (i)

ANNUAL FORECASTED SALES UNITS

SELLING PRICE (Pi)

VARIABLE COST (Vi)

5

6

7

8

9

(Vi/Pi)

1 - (Vi/Pi)

ANNUAL FORECASTED SALES $

% OF SALES (Wi)

WEIGHTED CONTRIBUTION (COL 6 X COL 8)

Sandwich

9,000

$5.00

$3.00

.60

.40

$45,000

.621

.248

Drinks

9,000

1.50

0.50

.33

.67

13,500

.186

.125

2.00

1.00

.50

.50

14,000

.193

.097

$72,500

1.000

.470

Baked potato

7,000

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F MultiproductBEP Example = éæ ö

ù Vi åêêç1- P ÷ ´ Wi úú ëè û i ø

$

( )

Fixed costs = $3,000 per month ITEM

PRICE

COST

Sandwich

$5.00

$3.00

Drink

1.50

.50

Baked potato

2.00

1.00

1

3

2

4

ANNUAL FORECASTED SALES UNITS

$3,000 x 12 9,000 = = $76,596 .47 9,000

$76,596 Daily 7,000 = sales 312 days = $245.50 5

6

7

8

ANNUAL WEIGHTED .621 x $245.50 FORECASTED = 30.5 CONTRIBUTION 31 SALES $ % OF SALES (COL 5 X COL 7) $5.00 Sandwiches

SELLING PRICE (P)

VARIABLE COST (V)

(V/P)

1 - (V/P)

$5.00

$3.00

.60

.40

$45,000

.621

each day.248

Drinks

1.50

0.50

.33

.67

13,500

.186

.125

Baked potato

2.00

1.00

.50

.50

14,000

.193

.097

$72,500

1.000

.470

ITEM (i)

Sandwich

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Figure S7.6

Reducing Risk with Incremental Changes (b) Leading demand with a one-step expansion

Expected demand

Demand

(c) Lagging demand with incremental expansion New capacity

Copyright © 2017 Pearson Education, Ltd.

Expected demand

Demand

New capacity

New capacity

Expected demand

(d) Attempts to have an average capacity with incremental expansion Demand

Demand

(a) Leading demand with incremental expansion

New capacity

Expected demand

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Strategic Importance of Layout Decisions The objective of layout strategy is to develop an effective and efficient layout that will meet the firm’s competitive requirements

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Layout Design Considerations ►

Higher utilization of space, equipment, and people

►

Improved flow of information, materials, or people

►

Improved employee morale and safer working conditions

►

Improved customer/client interaction

►

Flexibility

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Types of Layout 1. 2. 3. 4. 5. 6. 7.

Office layout Retail layout Warehouse layout Fixed-position layout Process-oriented layout Work-cell layout Product-oriented layout

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Types of Layout 1. Office layout: Positions workers, their equipment, and spaces/offices to provide for movement of information 2. Retail layout: Allocates display space and responds to customer behavior 3. Warehouse layout: Addresses tradeoffs between space and material handling

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Types of Layout 4. Fixed-position layout: Addresses the layout requirements of large, bulky projects such as ships and buildings 5. Process-oriented layout: Deals with low-volume, high-variety production (also called job shop or intermittent production)

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Types of Layout 6. Work cell layout: Arranges machinery and equipment to focus on production of a single product or group of related products 7. Product-oriented layout: Seeks the best personnel and machine utilizations in repetitive or continuous production Copyright © 2017 Pearson Education, Ltd.

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Good Layouts Consider ►

Material handling equipment

►

Capacity and space requirements

►

Environment and aesthetics

►

Flows of information

►

Cost of moving between various work areas

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Office Layout ►

Grouping of workers, their equipment, and spaces to provide comfort, safety, and movement of information

►

Movement of information is main distinction

►

Typically in state of flux due to frequent technological changes

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Relationship Chart

Figure 9.1 Copyright © 2017 Pearson Education, Ltd.

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Retail Layout ▶Objective is to maximize profitability per square foot of floor space ▶Sales and profitability vary directly with customer exposure

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Five Helpful Ideas for Supermarket Layout 1. Locate high-draw items around the periphery of the store

2. Use prominent locations for high-impulse and high-margin items 3. Distribute power items to both sides of an aisle and disperse them to increase viewing of other items 4. Use end-aisle locations 5. Convey mission of store through careful positioning of lead-off department Copyright © 2017 Pearson Education, Ltd.

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Store Layout

Figure 9.2 Copyright © 2017 Pearson Education, Ltd.

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Servicescapes 1. Ambient conditions - background characteristics such as lighting, sound, smell, and temperature 2. Spatial layout and functionality - which involve customer circulation path planning, aisle characteristics, and product grouping 3. Signs, symbols, and artifacts - characteristics of building design that carry social significance Copyright © 2017 Pearson Education, Ltd.

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Warehouse and Storage Layouts ▶Objective is to find the optimum trade-offs between handling costs and costs associated with warehouse space ▶Maximize the total "cube" of the warehouse – utilize its full volume while maintaining low material handling costs Copyright © 2017 Pearson Education, Ltd.

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Fixed-Position Layout ▶Product remains in one place ▶Workers and equipment come to site ▶Complicating factors ▶Limited space at site

▶Different materials required at different stages of the project ▶Volume of materials needed is dynamic Copyright © 2017 Pearson Education, Ltd.

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Alternative Strategy ▶As much of the project as possible is completed off-site in a product-oriented facility ▶This can significantly improve efficiency but is only possible when multiple similar units need to be created Copyright © 2017 Pearson Education, Ltd.

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Process-Oriented Layout ▶Like machines and equipment are grouped together ▶Flexible and capable of handling a wide variety of products or services ▶Scheduling can be difficult and setup, material handling, and labor costs can be high

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Process-Oriented Layout Surgery

ER triage room

Emergency room admissions Patient A - broken leg

Patient B - erratic heart pacemaker Laboratories

Radiology

ER Beds

Pharmacy

Billing/exit Figure 9.3

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Process-Oriented Layout ▶Arrange work centers so as to minimize the costs of material handling ▶Basic cost elements are ▶Number of loads (or people) moving between centers ▶Distance loads (or people) move between centers

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Work Cells ▶Reorganizes people and machines into groups to focus on single products or product groups ▶Group technology identifies products that have similar characteristics for particular cells ▶Volume must justify cells ▶Cells can be reconfigured as designs or volume changes Copyright © 2017 Pearson Education, Ltd.

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Advantages of Work Cells 1. Reduced work-in-process inventory 2. Less floor space required 3. Reduced raw material and finished goods inventories 4. Reduced direct labor cost 5. Heightened sense of employee participation 6. Increased equipment and machinery utilization 7. Reduced investment in machinery and equipment Copyright © 2017 Pearson Education, Ltd.

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Requirements of Work Cells ▶Identification of families of products ▶A high level of training, flexibility and empowerment of employees ▶Being self-contained, with its own equipment and resources ▶Test (poka-yoke) at each station in the cell

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Staffing and Balancing Work Cells Determine the takt time Takt time =

Total work time available Units required to satisfy customer demand

Determine the number of operators required Workers required = Copyright © 2017 Pearson Education, Ltd.

Total operation time required Takt time 5 - 116

Staffing Work Cells Example

Standard time required

600 mirrors per day required Mirror production scheduled for 8 hours per day 60 From a work balance chart total operation 50 time = 140 seconds 40 30 20 10

Figure 9.10

Copyright © 2017 Pearson Education, Ltd.

0

Assemble Paint

Test

Label Pack for shipment

Operations

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Staffing Work Cells Example 600 mirrors per day required Mirror production scheduled for 8 hours per day From a work balance chart total operation time = 140 seconds

Takt time = (8 hrs x 60 mins) / 600 units = .8 min = 48 seconds Workers required =

Total operation time required Takt time

= 140 / 48 = 2.92 Copyright © 2017 Pearson Education, Ltd.

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Repetitive and ProductOriented Layout Organized around products or families of similar high-volume, low-variety products 1. Volume is adequate for high equipment utilization

2. Product demand is stable enough to justify high investment in specialized equipment 3. Product is standardized or approaching a phase of life cycle that justifies investment 4. Supplies of raw materials and components are adequate and of uniform quality Copyright © 2017 Pearson Education, Ltd.

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Product-Oriented Layouts ►

►

Fabrication line ►

Builds components on a series of machines

►

Machine-paced

►

Require mechanical or engineering changes to balance

Assembly line ►

Puts fabricated parts together at a series of workstations

►

Paced by work tasks

►

Balanced by moving tasks

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Product-Oriented Layouts ►

►

Fabrication line ►

Builds components on a series of machines

►

Machine-paced

►

Require mechanical or engineering changes to balance

Assembly line ►

► ►

Both types of lines must be balanced Puts fabricated parts together at a series of so that the time to workstations perform the work at Paced by work tasks each station is the same Balanced by moving tasks

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Product-Oriented Layouts Advantages 1. 2. 3. 4. 5.

Low variable cost per unit Low material handling costs Reduced work-in-process inventories Easier training and supervision Rapid throughput

Disadvantages 1. High volume is required 2. Work stoppage at any point ties up the whole operation 3. Lack of flexibility in product or production rates Copyright © 2017 Pearson Education, Ltd.

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McDonald's Assembly Line

Figure 9.11 Copyright © 2017 Pearson Education, Ltd.

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Assembly-Line Balancing ▶Objective is to minimize the imbalance between machines or personnel while meeting required output ▶Starts with the precedence relationships ▶Determine cycle time ▶Calculate theoretical minimum number of workstations ▶Balance the line by assigning specific tasks to workstations Copyright © 2017 Pearson Education, Ltd.

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Wing Component Example TABLE 9.2 TASK

Precedence Data for Wing Component

ASSEMBLY TIME (MINUTES)

TASK MUST FOLLOW TASK LISTED BELOW

A

10

–

B

11

A

C

5

B

D

4

B

E

11

A

F

3

C, D

G

7

F

H

11

E

I

3

G, H

Total time

This means that tasks B and E cannot be done until task A has been completed

65

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Wing Component Example TABLE 9.2

TASK

Precedence Data for Wing Component

ASSEMBLY TIME (MINUTES)

480 available mins per day 40 units required

TASK MUST FOLLOW TASK LISTED BELOW

A

10

–

B

11

A

C

5

B

D

4

B

E

11

A

F

3

C, D

Figure 9.12 5

G

7

F

10

H

11

E

A

I

3

G, H

Total time

65

11

B

3

7

F

G

4 11

E

Copyright © 2017 Pearson Education, Ltd.

C

D

3 11

I

H 5 - 126

Wing Component Example TABLE 9.2

TASK

Precedence Data for Wing Component

ASSEMBLY TIME (MINUTES)

480 available mins per day 40 units required

TASK MUST FOLLOW TASK LISTED BELOW –

A

10

B

11

C

5

D

4

B

E

11

A

F

3

C, D

Production time available A per day Cycle B time = Units required per day

= 480 / 40 5 = 12 minutes per unit

G

7

F

10

H

11

E

A

I

3 Total time

65

Copyright © 2017 Pearson Education, Ltd.

11 n

C

Figure 9.12

3

åB Time for task F i

Minimum number i=1 4 = G, H of workstations Cycle D time 11 11 = 65E/ 12 H = 5.42, or 6 stations

7

G 3

I

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Wing Component Example TABLE 9.3

Layout Heuristics That May Be Used to Assign Tasks to Workstations in Assembly-Line Balancing

1. Longest task time

From the available tasks, choose the task with the largest (longest) task time

2. Most following tasks

From the available tasks, choose the task with the largest number of following tasks

3. Ranked positional weight

From the available tasks, choose the task for which the sum of following task times is the longest

4. Shortest task time

From the available tasks, choose the task with the shortest task time

5. Least number of following tasks

From the available tasks, choose the task with the least number of subsequent tasks

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Wing Component Example 480 available mins per day 40 units required

Figure 9.13

Station 2

10

11

A

B

5

C 4

D Station 1

Cycle time = 12 mins Minimum workstations = 5.42 or 6 3

7

F

G

Station 3 Station 4

I

11

11

E

H

Station 3

Station 5

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3

Station 6 Station 6

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Wing Component Example TABLE 9.2

TASK

ASSEMBLY TIME (MINUTES)

TASK MUST FOLLOW TASK LISTED BELOW

A

10

–

B

11

A

C

5

B

D

4

B

E

11

A

F

3

C, D

Efficiency = G H I

480 available mins per day 40 units required

Precedence Data for Wing Component

Cycle time = 12 mins Minimum workstations = 5.42 or 6 Figure 9.12

∑ Task times

E

11

A

B

C

3 7 7 F workstations) x (Largest cycle (Actual number of time)

11

10

5

= 65 minutes / ((6 stations) x (12 minutes))4 3 G, H D = 90.3% 11 Total time 65

F

G 3

I

11

E

H Idle Time = ((6 stations) × (12 minutes)) – 65 minutes = 7 minutes Copyright © 2017 Pearson Education, Ltd.

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