© 1997 Prentice-Hall, Inc. 5 - 1 Principles of Operations Management Process & Capacity Design Chapter 5

© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.

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Principles of Principles of Operations ManagementOperations Management

Principles of Principles of Operations ManagementOperations Management

Process & Capacity DesignProcess & Capacity DesignChapter 5Chapter 5


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Describe the types of process Describe the types of process strategiesstrategies

Compare technological alternativesCompare technological alternatives State how to select a process strategyState how to select a process strategy Define capacityDefine capacity Explain how to manage existing Explain how to manage existing

capacitycapacity

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives


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McDonald’sover 95 billion served


Thinking ChallengeThinking ChallengeThinking ChallengeThinking Challenge

Consider McDonald’s Consider McDonald’s restaurants. restaurants. Fact #1Fact #1: : Franchisees of McDonald’s Franchisees of McDonald’s have to go to ‘Hamburger have to go to ‘Hamburger U.’ They protest, ‘But, I’ve U.’ They protest, ‘But, I’ve been in the restaurant been in the restaurant business 20 years – I know business 20 years – I know the restaurant business!’ the restaurant business!’ ‘Yes, but you don’t know ‘Yes, but you don’t know OUROUR business.’ business.’

© 1984-1994 T/Maker Co.


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Thinking ChallengeThinking ChallengeThinking ChallengeThinking Challenge

Fact #2Fact #2: A typical : A typical McDonald’s restaurant is McDonald’s restaurant is run by unskilled teenagers, run by unskilled teenagers, whose mothers can’t even whose mothers can’t even get them to make their get them to make their beds in the morning.beds in the morning.

What do these facts & your What do these facts & your own experiences suggest own experiences suggest about McDonald’s about McDonald’s operations?operations?



© 1984-1994 T/Maker Co.

AloneAlone GroupGroup Class Class


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Process DecisionsProcess DecisionsProcess DecisionsProcess Decisions

Involve determining how to produce Involve determining how to produce a product or provide a servicea product or provide a service

ObjectiveObjective Meet or exceed customer requirementsMeet or exceed customer requirements Meet cost & managerial goalsMeet cost & managerial goals

Has long-run effectsHas long-run effects Product & volume flexibilityProduct & volume flexibility Costs & quality Costs & quality


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Types of Types of Process StrategiesProcess Strategies

Types of Types of Process StrategiesProcess Strategies

ContinuumContinuum

Repetitive-Repetitive-FocusedFocused

Product-Product-FocusedFocused

Process-Process-FocusedFocused

The strategies are often classified as:The strategies are often classified as:


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Process-Focused Process-Focused StrategyStrategy

Process-Focused Process-Focused StrategyStrategy

Facilities are organized by processFacilities are organized by process Similar processes are togetherSimilar processes are together

Example: All drill presses are togetherExample: All drill presses are together

Low volume, high variety productsLow volume, high variety products ‘‘Jumbled’ flowJumbled’ flow Other namesOther names

Intermittent processIntermittent process Job shopJob shop

Oper.Oper.Product AProduct A

Product BProduct B

1111 2222 3333


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Process-Focused Strategy Process-Focused Strategy Pros & ConsPros & Cons

Process-Focused Strategy Process-Focused Strategy Pros & ConsPros & Cons

AdvantagesAdvantages Greater product flexibilityGreater product flexibility More general purpose equipmentMore general purpose equipment Lower initial capital investmentLower initial capital investment

DisadvantagesDisadvantages More highly trained personnelMore highly trained personnel More difficult production planning & controlMore difficult production planning & control Low equipment utilization (5% to 25%) Low equipment utilization (5% to 25%)


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Product-Focused Product-Focused StrategyStrategy

Product-Focused Product-Focused StrategyStrategy

Facilities are organized by productFacilities are organized by product High volume, low variety productsHigh volume, low variety products Other namesOther names

Line flow productionLine flow production Continuous productionContinuous production

Where foundWhere found Discrete unit manufacturingDiscrete unit manufacturing Continuous process manufacturingContinuous process manufacturing

Oper.Oper.Products A & BProducts A & B

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Product-Focused StrategyProduct-Focused StrategyPros & ConsPros & Cons

Product-Focused StrategyProduct-Focused StrategyPros & ConsPros & Cons

AdvantagesAdvantages Lower variable cost per unitLower variable cost per unit Lower but more specialized labor skillsLower but more specialized labor skills Easier production planning & controlEasier production planning & control Higher equipment utilization (70% to 90%)Higher equipment utilization (70% to 90%)

DisadvantagesDisadvantages Lower product flexibilityLower product flexibility More specialized equipmentMore specialized equipment Usually higher capital investmentUsually higher capital investment


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Repetitive-Focused Repetitive-Focused Strategy Strategy

Repetitive-Focused Repetitive-Focused Strategy Strategy

Facilities often organized by assembly Facilities often organized by assembly lineslines

Characterized by Characterized by modulesmodules Parts & assemblies made previouslyParts & assemblies made previously

Modules combined for many output Modules combined for many output optionsoptions

Other namesOther names Assembly line Assembly line Production lineProduction line


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Thinking Challenge:Thinking Challenge:Compare & ContrastCompare & ContrastThinking Challenge:Thinking Challenge:Compare & ContrastCompare & Contrast

Basis of Process StrategyComparison

Basis of Process StrategyComparison



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Technology AlternativesTechnology AlternativesTechnology AlternativesTechnology Alternatives

General purpose machinesGeneral purpose machines Numerical control machinesNumerical control machines Process controlProcess control RobotsRobots Automated guided vehicles (AGV)Automated guided vehicles (AGV) Flexible manufacturing systems (FMS)Flexible manufacturing systems (FMS) Computer-integrated mfg. (CIM)Computer-integrated mfg. (CIM)


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General Purpose General Purpose Machines (GPM)Machines (GPM)General Purpose General Purpose Machines (GPM)Machines (GPM)

Machines capable Machines capable of performing of performing many different many different operationsoperations

Manually operatedManually operated Found in process-Found in process-

focused facilitiesfocused facilities Low volume Low volume

productionproduction

Manual LatheManual Lathe

RouterRouter© 1995 Corel Corp.

© 1995 Corel Corp.


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Used in computer-Used in computer-aided mfg. (CAM)aided mfg. (CAM) Using computers to Using computers to

program, direct, & program, direct, & control machinescontrol machines

Numerical control Numerical control (NC) machine(NC) machine Repeat operations by Repeat operations by

reading punch paper reading punch paper or magnetic tape or magnetic tape

Computer numerical Computer numerical control (CNC) machinecontrol (CNC) machine Programmable by Programmable by

operator at machineoperator at machine Has own memoryHas own memory

Direct numerical Direct numerical control (DNC) machinecontrol (DNC) machine Has own memoryHas own memory Connected to computer Connected to computer

running many machinesrunning many machines

Numerical Control (NC)Numerical Control (NC)Numerical Control (NC)Numerical Control (NC)


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Process ControlProcess ControlProcess ControlProcess Control

Example: Measure Example: Measure thickness of thickness of wallboardwallboard

Found in product & Found in product & repetitive-focused repetitive-focused facilitiesfacilities

Actual avg.Actual avg. Planned avg.Planned avg.

Process limitsProcess limits© 1995

Corel Corp.

Use of information Use of information technology to technology to control physical control physical processprocess


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RobotsRobotsRobotsRobots

Machines that hold, Machines that hold, move, or grasp itemsmove, or grasp items

Perform Perform monotonous or monotonous or dangerous tasksdangerous tasks

Used when speed, Used when speed, accuracy, or accuracy, or strength are strength are neededneeded

© 1984-1994 T/Maker Co.


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Automated Guided Automated Guided Vehicles (AGV)Vehicles (AGV)

Automated Guided Automated Guided Vehicles (AGV)Vehicles (AGV)

Material handling Material handling machinesmachines

Used to move Used to move parts & equipment parts & equipment in manufacturingin manufacturing

May be used to May be used to deliver mail & deliver mail & meals in service meals in service facilitiesfacilities

© 1984-1994 T/Maker Co.


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Flexible Manufacturing Flexible Manufacturing Systems (FMS)Systems (FMS)

Flexible Manufacturing Flexible Manufacturing Systems (FMS)Systems (FMS)

Using automated Using automated machines (DNC) & machines (DNC) & materials handling materials handling equipment togetherequipment together

Often connected to Often connected to centralized computercentralized computer

Also called Also called automated work cellautomated work cell

Computer

Machine 1

Machine 2

Robotor AGV

Auto ToolChg.

Auto ToolChg.

Computer

Machine 1

Machine 2

Robotor AGV

Auto ToolChg.

Auto ToolChg.


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Computer-Integrated Computer-Integrated Manufacture (CIM)Manufacture (CIM)

Computer-Integrated Computer-Integrated Manufacture (CIM)Manufacture (CIM)

Mfg. system that Mfg. system that combines CAM with combines CAM with engineering (CAD), engineering (CAD), & production & & production & inventory controlinventory control

Computer-aided Computer-aided design (CAD) design (CAD) creates code to creates code to run DNC machinesrun DNC machines

DNC Robots

PIC

AGV

CAD

TopMgmt

DNC Robots

PIC

AGV

CAD

TopMgmt

CAM CAM


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Production Process & Production Process & Technology Alternatives Technology Alternatives

Production Process & Production Process & Technology Alternatives Technology Alternatives

Flexible Mfg. System

Flexible Mfg. System

Low HighHigh

General Purpose, General Purpose, NC, CNCNC, CNC

CIMCIM

# Different Products or Parts# Different Products or Parts

Volume of Products or PartsVolume of Products or Parts

Low

HighHigh

DedicatedDedicatedAutomationAutomation


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Factors Affecting Factors Affecting Process AlternativesProcess AlternativesFactors Affecting Factors Affecting

Process AlternativesProcess Alternatives

Production flexibilityProduction flexibility Product volumeProduct volume Product varietyProduct variety

TechnologyTechnology CostCost Human resourcesHuman resources QualityQuality ReliabilityReliability

These factors reduce the number of alternatives!

These factors reduce the number of alternatives!

© 1984-1994 T/Maker Co.


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Process Investment Process Investment EvaluationEvaluation

Process Investment Process Investment EvaluationEvaluation

Long-term factorsLong-term factors Fit with company strategic planFit with company strategic plan Competitive advantageCompetitive advantage Product life cycleProduct life cycle Operating factors (e.g., scrap, training)Operating factors (e.g., scrap, training)

Financial returnFinancial return Break-even analysisBreak-even analysis Cash flow analysis (IRR, NPV)Cash flow analysis (IRR, NPV)


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Break-Even AnalysisBreak-Even AnalysisBreak-Even AnalysisBreak-Even Analysis

Technique for evaluating process & Technique for evaluating process & equipment alternativesequipment alternatives

Objective: Find the point ($ or units) at Objective: Find the point ($ or units) at which total cost equals total revenuewhich total cost equals total revenue

AssumptionsAssumptions Revenue & costs are related linearly to Revenue & costs are related linearly to

volumevolume All information is known with certaintyAll information is known with certainty No time value of moneyNo time value of money


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Facility PlanningFacility PlanningFacility PlanningFacility Planning

How muchHow much long-range capacity is long-range capacity is neededneeded

When When more capacity is neededmore capacity is needed Where Where facilities should be located facilities should be located

(location)(location) HowHow facilities should be arranged facilities should be arranged

(layout)(layout)

Facility planning answers:Facility planning answers:


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CapacityCapacityCapacityCapacity

Maximum output of a system in a given Maximum output of a system in a given period (general definition)period (general definition) May be units, hours, dollars, sq. ft. etc.May be units, hours, dollars, sq. ft. etc. Example: Tons of steel per monthExample: Tons of steel per month

Effective capacityEffective capacity: Maximum output : Maximum output given standards, product mix, etc.given standards, product mix, etc.

Rated capacityRated capacity: Maximum : Maximum usableusable output given utilization & efficiencyoutput given utilization & efficiency RC = (Capacity)(Utilization)(Efficiency)RC = (Capacity)(Utilization)(Efficiency)


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Capacity Definition Capacity Definition Thinking ChallengeThinking ChallengeCapacity Definition Capacity Definition Thinking ChallengeThinking Challenge

How would you define capacity for How would you define capacity for the following firms (e.g., steel mill, the following firms (e.g., steel mill, tons of steel per day):tons of steel per day): Beer breweryBeer brewery Auto plantAuto plant RestaurantRestaurant WarehouseWarehouse Grocery storeGrocery store



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UtilizationUtilizationUtilizationUtilization

Measure of planned or actual capacity Measure of planned or actual capacity usage of a facility, work center, or usage of a facility, work center, or machinemachine

Measure of planned or actual capacity Measure of planned or actual capacity usage of a facility, work center, or usage of a facility, work center, or machinemachine

UtilizationExpected capacity

Capacity

Planned hours to be usedTotal hours available

UtilizationExpected capacity

Capacity

Planned hours to be usedTotal hours available


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EfficiencyEfficiencyEfficiencyEfficiency

Measure of how well a facility or Measure of how well a facility or machine is performing when usedmachine is performing when used

Measure of how well a facility or Measure of how well a facility or machine is performing when usedmachine is performing when used

EfficiencyActual output

Effective capacity

Actual output in unitsStandard output in units

Average actual timeStandard time

EfficiencyActual output

Effective capacity

Actual output in unitsStandard output in units

Average actual timeStandard time


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Utilization ExampleUtilization ExampleUtilization ExampleUtilization Example

You’re owner of a small You’re owner of a small florist shop. Normally, florist shop. Normally, your shop is open your shop is open 8 hr./day8 hr./day MondayMonday to to FridayFriday, & , & 4 hr.4 hr. on on SaturdaySaturday. During the . During the summer, you’re summer, you’re closedclosed on on MondayMonday & & SaturdaySaturday. What . What is your capacity, expected is your capacity, expected capacity, & utilization capacity, & utilization during the summer?during the summer?

© 1995 Corel Corp.


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Utilization Utilization Thinking ChallengeThinking Challenge

Utilization Utilization Thinking ChallengeThinking Challenge


© 1984-1994 T/Maker Co.

You’re operations manager You’re operations manager of a paper company. of a paper company. Given the expensive Given the expensive machinery, full capacity is machinery, full capacity is 3 shifts3 shifts, , 7 days 7 days per week. per week. Since demand is slow, Since demand is slow, you’ve scheduled you’ve scheduled 3 shifts3 shifts, , 6 days 6 days per week. What is per week. What is your capacity, expected your capacity, expected capacity, & utilization?capacity, & utilization?

© 1995 Corel Corp.


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Rated Capacity Rated Capacity Thinking ChallengeThinking Challenge

Rated Capacity Rated Capacity Thinking ChallengeThinking Challenge


© 1984-1994 T/Maker Co.

The standard rate of output The standard rate of output of a paper mfg. machine is of a paper mfg. machine is 1800 ft./min1800 ft./min. Records . Records show that the actual show that the actual average rate is average rate is 1710 1710 ft./minft./min. Present utilization . Present utilization is is 85.7%85.7%. The plant was . The plant was designed to make designed to make 92,00092,000 tons of paper per year. tons of paper per year. What is the rated capacity?What is the rated capacity?

© 1995 Corel Corp.


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Capacity Planning Capacity Planning ProcessProcess

Capacity Planning Capacity Planning ProcessProcess

ForecastDemand

ComputeNeeded

Capacity

DevelopAlternative

Plans

EvaluateCapacity

Plans

ComputeRated

Capacity

Select BestCapacity

Plan

ImplementBest Plan

QuantitativeFactors

(e.g., Cost)

QualitativeFactors

(e.g., Skills)

ForecastDemand

ComputeNeeded

Capacity

DevelopAlternative

Plans

EvaluateCapacity

Plans

ComputeRated

Capacity

Select BestCapacity

Plan

ImplementBest Plan

QuantitativeFactors

(e.g., Cost)

QualitativeFactors

(e.g., Skills)


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Vary staffingVary staffing Change equipment Change equipment

& processes& processes Change methodsChange methods Redesign the product Redesign the product

for faster processingfor faster processing

Managing Managing Existing CapacityExisting Capacity

Managing Managing Existing CapacityExisting Capacity

Capacity ManagementCapacity Management Vary pricesVary prices Vary promotionVary promotion Change lead timesChange lead times

(e.g., backorders)(e.g., backorders) Offer complementary Offer complementary

productsproducts

Demand ManagementDemand Management


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Described the types of process Described the types of process strategiesstrategies

Compared technological alternativesCompared technological alternatives Stated how to select a process strategyStated how to select a process strategy Defined capacityDefined capacity Explained how to manage existing Explained how to manage existing

capacitycapacity

ConclusionConclusionConclusionConclusion

Documents

© 1997 Prentice-Hall, Inc. 5 - 1 Principles of Operations Management Process & Capacity Design Chapter 5