Operations Management: Process Strategy

Operations Management Chapter 7 Process Strategy

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Process, Volume, and Variety Volume Repetitive Process

Figure 7.1

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

Process Focus projects, job shops (machine, print, carpentry) Standard Register

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

Repetitive (autos, motorcycles) Harley Davidson Poor Strategy (Both fixed and variable costs are high)

Product Focus (commercial baked goods, steel, glass) Nucor Steel

2

Process Flow Diagram Customer

Purchasing

Customer sales representative

Vendors PREPRESS DEPT

Accounting

Receiving PRINTING DEPT

Warehouse COLLATING DEPT

Information flow Material flow

GLUING, BINDING, STAPLING, LABELING

POLYWRAP DEPT

SHIPPING

3 Figure 7.2

Process Strategies  How to produce a product or provide a service that  ……………………………………………… ……………………………………………..  Meets cost and managerial goals

 Has long term effects on  ……………………………………………… ………………………………………………  Costs and quality 4

Process Strategies Four basic strategies  P………………………………….  R………………………………….  P……………………………..…..  M……………………………..….. Within these basic strategies there are many ways they may be implemented 5

Process Focus  Facilities are organized around ……………. activities or processes  General purpose equipment and ………...... personnel  High degree of …………………………………  Typically ……………………. and ……………. equipment utilization  Product flows may vary considerably making planning and scheduling a challenge

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Repetitive Focus  Facilities often organized as …………………………………………….  Characterized by ………………… with parts and …………………....... made previously  Modules may be ………………….. for many output options  Less …………….. than processfocused facilities but more …………..

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Process Flow Diagram Frame tube bending

Frame-building work cells

Frame machining

Hot-paint frame painting

THE ASSEMBLY LINE TESTING 28 tests

Incoming parts

Air cleaners

Oil tank work cell

Fluids and mufflers

Shocks and forks

Fuel tank work cell

Handlebars

Wheel work cell

Fender work cell

Engines and transmissions From Milwaukee on a JIT arrival schedule

Roller testing Crating

Figure 7.3

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Product Focus  Facilities are organized by ………….  ………………… volume but ………… variety of products  Long, continuous production runs ……………….. efficient processes  Typically high …………….. but low ……………………………  Generally ……………… skilled labor 9

Mass Customization  The …………., …………………….. production of goods and service to satisfy increasingly ………………………… customer desires  Combines the ……………….. of a process focus with the ………………… of a product focus 10

Mass Customization Repetitive Focus

Figure 7.5

Modular design Flexible equipment

Modular techniques Mass Customization Effective scheduling techniques Process-Focused

High variety, low volume Low utilization (5% to 25%) General-purpose equipment

Rapid throughput techniques Product-Focused

Low variety, high volume High utilization (70% to 90%) Specialized equipment 11

Comparison of Processes Process Focus (Low volume, high variety)

Repetitive Focus (Modular)

Table 7.2

Product Focus Mass Customization (High-volume, low- (High-volume, highvariety) variety)

Small quantity, large variety of products

Long runs, Large quantity, small Large quantity, large standardized variety of products variety of products product made from modules

General purpose equipment

Special equipment aids in use of assembly line

Special purpose equipment

Rapid changeover on flexible equipment

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Changing Processes  ………………… and ………………...  May mean starting over  Process strategy determines transformation strategy for an extended period  Important to get it right. 13

Process Analysis and Design  …………………………. - Shows the movement of materials  ……………………………. - Shows flows and time frame  …………………………….. - Shows flows and time and value added beyond the immediate organization  ………………………………. - Uses symbols to show key activities  ………………………………… - focuses on customer/provider interaction

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Time-Function Mapping Customer

Order product

Sales

Process order

Production control

Receive product

Wait

Plant

Print

Extrude

Warehouse

Wait

Transport

Move 1 day

Figure 7.7

2 days

1 day 6 days

1 day

1 day 15

Process Chart

Figure 7.8

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Service Blueprint  Focuses on the customer and provider …………………………….  Defines three levels of ………………  Each level has different management issues  Identifies potential …………………... 17

Service Blueprint Personal Greeting Level #1

Service Diagnosis

Perform Service

Customer arrives for service

Warm greeting and obtain service request

Customer departs

No Standard request

Level #2 Direct customer to waiting room

Determine specifics

Can service be done and does customer approve?

Yes

Level #3 Potential failure point

Figure 7.9

Friendly Close

Yes

Notify customer and recommend an alternative provider

Customer pays bill

No Notify customer the car is ready

Perform required work

Prepare invoice 18

Process Analysis Tools  F……………………… provide a view of the big picture  ……………………………… adds rigor and a time element  ………………………………. extends to customers and suppliers  ………………………… show detail  ………………………… focuses on customer interaction

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Service Process Matrix Mass Service and Professional Service  Labor involvement is …………….  S…………. and t……….. highly important  Focus on …………………………………  Personalized services Service Factory and Service Shop  Automation of standardized services  Low labor intensity responds well to process technology and scheduling  Tight control required to maintain …………………………….

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Improving Service Productivity Strategy

Technique

Example

Separation

Structure service so Bank customers go to a customers must go manager to open a new where service is offered account, to loan officers for loans, and to tellers for deposits

Self-service

Self-service so customers Supermarkets and examine, compare, and department stores, evaluate at their own internet ordering pace

Table 7.3 21

Improving Service Productivity Strategy

Technique

Example

Postponement

Customizing at delivery

Customizing vans at delivery rather than at production

Focus

Restricting the offerings

Limited-menu restaurant

Modules

Modular selection of service, modular production

Investment and insurance selection, prepackaged food modules in restaurants

Table 7.3 22

Improving Service Productivity Table 7.3

Strategy

Technique

Example

Automation

Precise personnel scheduling

Automatic teller machines

Scheduling

Precise personnel scheduling

Scheduling ticket counter personnel at 15-minute intervals at airlines

Training

Clarifying the service Investment counselor, options, explaining how to funeral directors, afteravoid problems sale maintenance personnel

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Equipment and Technology  Often complex decisions  Possible competitive advantage  Flexibility; Stable processes  May allow enlarging the scope of the processes

Improving Service Processes  Layout  Product exposure, customer education, product enhancement  Human Resources  Recruiting and training; Impact of flexibility

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Process Control  Increased process ………………..  Increased process ………………….  Real-time provision of information for process evaluation  Data available in many forms

25

Technology in Services

Table 7.4

Service Industry

Example

Financial Services

Debit cards, electronic funds transfer, ATMs, Internet stock trading

Education

Electronic bulletin boards, on-line journals

Utilities and government

Automated one-man garbage trucks, optical mail and bomb scanners, flood warning systems

Restaurants and foods

Wireless orders from waiters to kitchen, robot butchering, transponders on cars that track sales at drive-throughs

Communications

Electronic publishing, interactive TV

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Technology in Services

Table 7.4

Service Industry

Example

Hotels

Electronic check-in/check-out, electronic key/lock system

Wholesale/retail trade

Point-of-sale terminals, e-commerce, electronic communication between store and supplier, bar coded data

Transportation

Automatic toll booths, satellite-directed navigation systems

Health care

Online patient-monitoring, online medical information systems, robotic surgery

Airlines

Ticketless travel, scheduling, Internet purchases

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Process Redesign  The fundamental ……………. of business processes to bring about dramatic improvements in ……………………………  Relies on ……………. the purpose of the process and …………………….. both the purpose and the underlying assumptions  Requires ……………………. of the basic process and its objectives  Focuses on ……………………….. that cross functional lines  Any process is a candidate for redesign 28

Operations Management

Supplement 7 Capacity Planning

PowerPoint presentation to accompany Heizer/Render Operations Management, 8e 29

Capacity  The throughput, or the ………………… a facility can hold, receive, store, or produce in a period of time  Determines ……………………………  Determines if ………………….. will be satisfied  Three time horizons 30

Planning Over a Time Horizon

Long-range planning

Add facilities Add long lead time equipment

Intermediaterange planning

Subcontract Add equipment Add shifts

Short-range planning

Add personnel Build or use inventory

* Modify capacity

* Schedule jobs Schedule personnel Allocate machinery Use capacity

* Limited options exist Figure S7.1 31

Design and Effective Capacity  Design capacity is the maximum theoretical output of a system  Normally expressed as a …………….

 Effective capacity is the capacity a firm …………………………………………… …………………………………………… …………………………………………….  Often lower than design capacity 32

Utilization and Efficiency Utilization is the percent of design capacity achieved Utilization = ……………………………………….

Efficiency is the percent of effective capacity achieved Efficiency = ……………………………………………… 33

Bakery Example Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 1,200 rolls per hour Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity =

34

Bakery Example Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 1,200 rolls per hour Bakery operates 7 days/week, 3 - 8 hour shifts Design capacity = Utilization = 35

Bakery Example Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 1,200 rolls per hour Bakery operates 7 days/week, 3 - 8 hour shifts Design capacity = Utilization = Efficiency = 36

Bakery Example Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 1,200 rolls per hour Bakery operates 7 days/week, 3 - 8 hour shifts Efficiency = 84.6% Efficiency of new line = 75% Expected Output = (Effective Capacity)(Efficiency) =

37

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 ……………. and ………………………….. 38

Managing Demand  Demand exceeds capacity  Curtail demand by raising prices, scheduling longer lead time  Long term solution is to increase capacity

 Capacity exceeds demand  Stimulate market  Product changes

 Adjusting to seasonal demands  Produce products with complimentary demand patterns

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Capacity Considerations

 Forecast demand accurately  Understanding the technology and capacity increments  Find the optimal operating level (volume)  Build for change 40

Tactics for Matching Capacity to Demand 1. Making staffing changes 2. Adjusting equipment and processes  …………………………………………………….  ……………………………………………………..

1. Improving methods to increase ……………… 2. Redesigning the product to ………………… more throughput 41

Break-Even Analysis/ Cost Volume 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 43

Break-Even Analysis Assumptions  Costs and revenue are ………………….. 

Generally not the case in the real world

 We actually ………………..these costs 

Very difficult to accomplish

 There is …………………………………

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Break-Even Analysis –

Total revenue line

900 –

Cost in dollars

800 – 700 –

Break-even point Total cost = Total revenue

of r P

o c t i

or d i rr

Total cost line

600 – 500 – Variable cost

400 – 300 – 200 – 100 –

ss or o L rid r co

Fixed cost

|

Figure S7.5

| | | | | | | | | | | – 0 100 200 300 400 500 600 700 800 900 1000 1100 Volume (units per period)

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

Break-even point occurs when

TR = TC or Px = F + Vx

x= Number of units produced TR = Total revenue = Px F= Fixed costs V = Variable costs TC = Total costs = F + Vx

F BEPx = P-V 46

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

x= Number of units produced TR = Total revenue = Px F= Fixed costs V = Variable costs TC = Total costs = F + Vx

BEP$ = BEPx P F Profit = TR - TC = P-V P = Px - (F + Vx) F = Px - F - Vx = (P - V)/P = (P - V)x - F F = 1 - V/P

47

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

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

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

48

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

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

F BEP$ = = 1 - (V/P) = F BEPx = = P-V

= = 49

Break-Even Example 50,000 –

Revenue

40,000 –

Break-even point

Dollars

30,000 –

Total costs

20,000 – 10,000 –

Fixed costs – |

|

|

0

2,000

4,000

|

6,000 Units

|

|

8,000

10,000 50

Break-Even Example Multiproduct Case BEP$ =

where

V P F W i

F

∑

1-

Vi Pi

x (Wi)

= variable cost per unit = price per unit = fixed costs = percent each product is of total dollar sales = each product 51

Multiproduct Example Fixed costs = $3,500 per month Item Sandwich Soft drink Baked potato Tea Salad bar

Price $2.95 .80 1.55 .75 2.85

Cost $1.25 .30 .47 .25 1.00

Annual Forecasted Sales Units 7,000 7,000 5,000 5,000 3,000

52

Multiproduct Example Fixed costs = $3,500 per month Annual Forecasted Item Price Cost Sales Units Sandwich $2.95 $1.25 7,000 Soft drink .80 .30 7,000 Baked potato 1.55 .47 Annual 5,000 Weighted % of Contribution Tea Selling Variable .75 .25Forecasted 5,000 Item (i) Price (P) Cost (V) (V/P) 1 - (V/P) Sales $ Sales (col 5 x col 7) Salad bar 2.85 1.00 3,000

Sandwich Soft drink Baked potato Tea Salad bar

$2.95 .80 1.55

$1.25 .30 .47

.42 .38 .30

.58 .62 .70

$20,650 5,600 7,750

.446 .121 .167

.259 .075 .117

.75 2.85

.25 1.00

.33 .35

.67 .65

3,750 8,550 $46,300

.081 .185 1.000

.054 .120 .625 53

Multiproduct Example BEP$ =

F

∑

1-

Fixed costs = $3,500 per month

Vi Pi

x (Wi)

$3,500 12 Annualx Forecasted = $67,200 .625 Item Price Cost Sales Units Sandwich $2.95 $1.25 7,000 $67,200 Daily Soft drink .80 .30 7,000 = = $215.38 sales 312 days Annual Baked potato 1.55 .47 5,000 Weighted % of Contribution Tea Selling Variable .75 .25Forecasted 5,000 Item (i) Price (P) Cost (V) (V/P) 1 - (V/P) Sales $ Sales (col 5 x col 7) Salad bar 2.85 1.00 3,000 .446 x $215.38 = 32.6 ≈ .259 33 Sandwich $2.95 $1.25 .42 .58 $20,650 .446 $2.95 sandwiches =

Soft drink Baked potato Tea Salad bar

.80 1.55

.30 .47

.38 .30

.62 .70

5,600 7,750

.75 2.85

.25 1.00

.33 .35

.67 .65

3,750 8,550 $46,300

.121 .075 .167 per day .117

.081 .185 1.000

.054 .120 .625 54