Principles of Operations Management

1. Principles of Operations Management Process & Capacity DesignChapter 5

2. Learning Objectives • Describe the types of process strategies • Compare technological alternatives • State how to select a process strategy • Define capacity • Explain how to manage existing capacity

3. McDonald’sover 95 billion served Thinking Challenge Consider McDonald’s restaurants. Fact #1: Franchisees of McDonald’s have to go to ‘Hamburger U.’ They protest, ‘But, I’ve been in the restaurant business 20 years – I know the restaurant business!’ ‘Yes, but you don’t know OUR business.’ © 1984-1994 T/Maker Co.

4. McDonald’sover 95 billion served Alone Group Class Thinking Challenge Fact #2: A typical McDonald’s restaurant is run by unskilled teenagers, whose mothers can’t even get them to make their beds in the morning. What do these facts & your own experiences suggest about McDonald’s operations? © 1984-1994 T/Maker Co.

5. Process Decisions • Involve determining how to produce a product or provide a service • Objective • Meet or exceed customer requirements • Meet cost & managerial goals • Has long-run effects • Product & volume flexibility • Costs & quality

6. Continuum Types of Process Strategies • The strategies are often classified as: Process-Focused Repetitive-Focused Product-Focused

7. Process-Focused Strategy • Facilities are organized by process • Similar processes are together • Example: All drill presses are together • Low volume, high variety products • ‘Jumbled’ flow • Other names • Intermittent process • Job shop Product A Oper. 1 2 3 Product B

8. Process-Focused Strategy Pros & Cons • Advantages • Greater product flexibility • More general purpose equipment • Lower initial capital investment • Disadvantages • More highly trained personnel • More difficult production planning & control • Low equipment utilization (5% to 25%)

9. Product-Focused Strategy • Facilities are organized by product • High volume, low variety products • Other names • Line flow production • Continuous production • Where found • Discrete unit manufacturing • Continuous process manufacturing Products A & B Oper. 1 2 3

10. Product-Focused StrategyPros & Cons • Advantages • Lower variable cost per unit • Lower but more specialized labor skills • Easier production planning & control • Higher equipment utilization (70% to 90%) • Disadvantages • Lower product flexibility • More specialized equipment • Usually higher capital investment

11. Repetitive-Focused Strategy • Facilities often organized by assembly lines • Characterized by modules • Parts & assemblies made previously • Modules combined for many output options • Other names • Assembly line • Production line

12. Alone Group Class Thinking Challenge:Compare & Contrast

13. Technology Alternatives • General purpose machines • Numerical control machines • Process control • Robots • Automated guided vehicles (AGV) • Flexible manufacturing systems (FMS) • Computer-integrated mfg. (CIM)

14. General Purpose Machines (GPM) • Machines capable of performing many different operations • Manually operated • Found in process-focused facilities • Low volume production Manual Lathe © 1995 Corel Corp. Router © 1995 Corel Corp.

15. Computer numerical control (CNC) machine Programmable by operator at machine Has own memory Direct numerical control (DNC) machine Has own memory Connected to computer running many machines Numerical Control (NC) • Used in computer-aided mfg. (CAM) • Using computers to program, direct, & control machines • Numerical control (NC) machine • Repeat operations by reading punch paper or magnetic tape

16. Process Control Actual avg. Planned avg. • Example: Measure thickness of wallboard • Found in product & repetitive-focused facilities • Use of information technology to control physical process © 1995 Corel Corp. Process limits

17. Robots • Machines that hold, move, or grasp items • Perform monotonous or dangerous tasks • Used when speed, accuracy, or strength are needed © 1984-1994 T/Maker Co.

18. Automated Guided Vehicles (AGV) • Material handling machines • Used to move parts & equipment in manufacturing • May be used to deliver mail & meals in service facilities © 1984-1994 T/Maker Co.

19. Flexible Manufacturing Systems (FMS) • Using automated machines (DNC) & materials handling equipment together • Often connected to centralized computer • Also called automated work cell

20. Computer-Integrated Manufacture (CIM) • Mfg. system that combines CAM with engineering (CAD), & production & inventory control • Computer-aided design (CAD) creates code to run DNC machines CAM

21. Production Process & Technology Alternatives # Different Products or Parts High General Purpose, NC, CNC CIM Flexible Mfg. System Dedicated Automation Low Low High Volume of Products or Parts

22. Factors Affecting Process Alternatives These factors reduce the number of alternatives! • Production flexibility • Product volume • Product variety • Technology • Cost • Human resources • Quality • Reliability © 1984-1994 T/Maker Co.

23. Process Investment Evaluation • Long-term factors • Fit with company strategic plan • Competitive advantage • Product life cycle • Operating factors (e.g., scrap, training) • Financial return • Break-even analysis • Cash flow analysis (IRR, NPV)

24. Break-Even Analysis • Technique for evaluating process & equipment alternatives • Objective: Find the point ($ or units) at which total cost equals total revenue • Assumptions • Revenue & costs are related linearly to volume • All information is known with certainty • No time value of money

25. Facility Planning Facility planning answers: • How muchlong-range capacity is needed • When more capacity is needed • Where facilities should be located (location) • Howfacilities should be arranged (layout)

26. Capacity • Maximum output of a system in a given period (general definition) • May be units, hours, dollars, sq. ft. etc. • Example: Tons of steel per month • Effective capacity: Maximum output given standards, product mix, etc. • Rated capacity: Maximum usable output given utilization & efficiency • RC = (Capacity)(Utilization)(Efficiency)

27. Alone Group Class Capacity Definition Thinking Challenge • How would you define capacity for the following firms (e.g., steel mill, tons of steel per day): • Beer brewery • Auto plant • Restaurant • Warehouse • Grocery store

28. Utilization • Measure of planned or actual capacity usage of a facility, work center, or machine

29. Efficiency • Measure of how well a facility or machine is performing when used

30. Utilization Example You’re owner of a small florist shop. Normally, your shop is open 8 hr./dayMonday to Friday, & 4 hr. on Saturday. During the summer, you’re closed on Monday & Saturday. What is your capacity, expected capacity, & utilization during the summer? © 1995 Corel Corp.

31. Alone Group Class Utilization Thinking Challenge You’re operations manager of a paper company. Given the expensive machinery, full capacity is 3 shifts, 7 days per week. Since demand is slow, you’ve scheduled 3 shifts, 6 days per week. What is your capacity, expected capacity, & utilization? © 1984-1994 T/Maker Co. © 1995 Corel Corp.

32. Alone Group Class Rated Capacity Thinking Challenge The standard rate of output of a paper mfg. machine is 1800 ft./min. Records show that the actual average rate is 1710 ft./min. Present utilization is 85.7%. The plant was designed to make 92,000 tons of paper per year. What is the rated capacity? © 1984-1994 T/Maker Co. © 1995 Corel Corp.

33. Capacity Planning Process

34. Vary staffing Change equipment & processes Change methods Redesign the product for faster processing Managing Existing Capacity Capacity Management Demand Management • Vary prices • Vary promotion • Change lead times(e.g., backorders) • Offer complementary products

35. Conclusion • Described the types of process strategies • Compared technological alternatives • Stated how to select a process strategy • Defined capacity • Explained how to manage existing capacity