Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Chapter FourChapter FourProcess SelectionProcess Selection

Operations ManagementOperations ManagementContemporary Concepts and Cases 5/eContemporary Concepts and Cases 5/e

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Chapter OutlineChapter Outline

Product-Flow CharacteristicsProduct-Flow Characteristics

Approaches to Order FulfillmentApproaches to Order Fulfillment

Product-Process StrategyProduct-Process Strategy

Focused OperationsFocused Operations

Mass CustomizationMass Customization

Environmental ConcernsEnvironmental Concerns

Cross-Functional Decision MakingCross-Functional Decision Making

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Product-Flow CharacteristicsProduct-Flow Characteristics

Types of Product FlowTypes of Product Flow– Continuous processContinuous process– Assembly lineAssembly line– BatchBatch– Job shopJob shop– ProjectProject

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Product-Flow CharacteristicsProduct-Flow CharacteristicsContinuous ProcessContinuous Process

Process industries (beer, paper, oil, Process industries (beer, paper, oil, etcetc.).)

Highly standardized and automatedHighly standardized and automated

High volumes of productionHigh volumes of production

Commodity productsCommodity products

Low cost is the ‘order winner’Low cost is the ‘order winner’

Flexibility limitedFlexibility limited

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Product-Flow CharacteristicsProduct-Flow CharacteristicsAssembly Line FlowAssembly Line Flow

Linear sequence of operationsLinear sequence of operations

Discrete products (autos, appliances, Discrete products (autos, appliances, etcetc.).)

High-volume, standardized productsHigh-volume, standardized products

Inflexibility in product and volumeInflexibility in product and volume

Very efficientVery efficient

Large capital investmentLarge capital investment

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Assembly Line FlowAssembly Line Flow(metal bracket, see Fig. 4.1)(metal bracket, see Fig. 4.1)

paintdrill bend

Task or work station

Product flow

cut

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Product-Flow CharacteristicsProduct-Flow CharacteristicsBatch FlowBatch Flow

Production of batches or lotsProduction of batches or lots

Batches flow from one work center to anotherBatches flow from one work center to another

Low volume productsLow volume products

Many different types of productsMany different types of products

Flow is jumbled and intermittentFlow is jumbled and intermittent

Flexible labor and equipmentFlexible labor and equipment

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Batch FlowBatch Flow (three metal brackets, see Fig. 4.2)(three metal brackets, see Fig. 4.2)

Cut Paint

Task or work station Product flows

Bend

Drill

Batch ABatch BBatch C

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Product-Flow CharacteristicsProduct-Flow CharacteristicsJob ShopJob Shop

Production of small batches or lotsProduction of small batches or lots

Orders are customized for particular customer Orders are customized for particular customer ordersorders

Low volume productsLow volume products

Many different types of productsMany different types of products

Flow is jumbled and intermittentFlow is jumbled and intermittent

Flexible labor and equipmentFlexible labor and equipment

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Product-Flow CharacteristicsProduct-Flow CharacteristicsProjectProject

Production of customized single productsProduction of customized single products

Labor and materials brought to siteLabor and materials brought to site

Planning, scheduling challengesPlanning, scheduling challenges

Unique (one of a kind) productsUnique (one of a kind) products

Little automationLittle automation

Flexible labor and equipmentFlexible labor and equipment

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Approaches to Order FulfillmentApproaches to Order Fulfillment

Make-to-Stock (MTS)Make-to-Stock (MTS)

Make-to-Order (MTO)Make-to-Order (MTO)

Assemble-to-Order (ATO)Assemble-to-Order (ATO)

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Make-to-Stock (MTS)Make-to-Stock (MTS)

Produce finished goods; customer buys Produce finished goods; customer buys

from inventoryfrom inventory

Advantage: smooth productionAdvantage: smooth production

Disadvantage: inventoryDisadvantage: inventory

Key performance measures (next slide)Key performance measures (next slide)

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MTS Performance MeasuresMTS Performance Measures

Service level (orders filled when requested)Service level (orders filled when requested)

Inventory turnover (sales/avg. inventory)Inventory turnover (sales/avg. inventory)

Back order fill rateBack order fill rate

Inventory accuracyInventory accuracy

Time to replenishTime to replenish

Others, such as shrinkage rateOthers, such as shrinkage rate

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Make-to-Order (MTO)Make-to-Order (MTO)

Start production after customer ordersStart production after customer orders

Advantage: no finished goods inventoryAdvantage: no finished goods inventory

Disadvantage: intermittent productionDisadvantage: intermittent production

Key performance measuresKey performance measures

– Lead timeLead time

– Orders completed on time (or late)Orders completed on time (or late)

– Quality measuresQuality measures

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Assemble-to-Order (ATO)Assemble-to-Order (ATO)Produce parts and subassemblies; finish when Produce parts and subassemblies; finish when customer places ordercustomer places orderAdvantages: less inventory, faster serviceAdvantages: less inventory, faster serviceDisadvantage: some WIP inventoryDisadvantage: some WIP inventoryKey performance measuresKey performance measures

– Speed of serviceSpeed of service

– Inventory levelsInventory levels

– Quality of product and serviceQuality of product and service

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MTS and MTO ComparisonMTS and MTO ComparisonCharacteristics Make-to-Stock Make-to-OrderProduct Producer-specified

Low varietyInexpensive

Customer-specifiedHigh varietyExpensive

Objectives Balance inventory,capacity, and service

Manage delivery leadtimes and capacity

Main operationsproblems

ForecastingPlanning productionControl of invenntory

Delivery promisesDelivery time

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Make-to-Stock (Figure 4.3)

customer

Forecast orders

Production

Finished Goods Inventory

Product

Customer OrderProduct

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Make-to-Order (Figure 4.3)

customer

Production

Product

Customer Order

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Assemble-to-Order (Figure 4.3)

customer

Forecast orders

Production of Subassemblies

Inventory

of Subassemblies

Customer order

ProductAssembly of

the Order

Subassembly

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Order Penetration Point (Figure 4.4)

DistributionAssemblyFabricationSupplier

MTO MTO ATO MTS

∇------------------∇ ∇ ∇

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Process Selection DecisionsProcess Selection Decisions

Process characteristics matrixProcess characteristics matrix– MTS vs. MTO/ATOMTS vs. MTO/ATO– Continuous/discrete, batch & projectContinuous/discrete, batch & project

Factors affecting process choiceFactors affecting process choice– Market conditionsMarket conditions– Capital requirementsCapital requirements– Availability and cost of laborAvailability and cost of labor– State of technologyState of technology

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Process Characteristics MatrixProcess Characteristics Matrix (Table 4.3)(Table 4.3)

Characteristics Make-to-Stock Make-to-Order ATO

Continuous and Assembly Line Flow

Auto Assembly Line Oil refinery Cannery Cafeteria

Auto assembly line Dell Computers Motorola Pager Fast Food

Batch and Job Shop

Machine shop Fast food Glassware factory Costume Jewelry

Machine shop Restaurant Hospital Custom jewelry

Project

Speculation homes Commercial painting Noncommissioned art

Buildings Movies Ships

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Product-Process StrategyProduct-Process Strategy

Strategy must consider not only the product or Strategy must consider not only the product or service, but also how to produce it.service, but also how to produce it.

As many industries move through their As many industries move through their product life cycles, they also move through a product life cycles, they also move through a process life cycle, e.g., the traditional bread process life cycle, e.g., the traditional bread bakery vs. the modern automated bakery.bakery vs. the modern automated bakery.

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Product Life Cycle StagesProduct Life Cycle Stages

1. Unique, one of a kind1. Unique, one of a kind

2. Low volume, low standardization2. Low volume, low standardization

3. Low volume, multiple products3. Low volume, multiple products

4. Higher volume, few major products4. Higher volume, few major products

5. High volume, high standardization, 5. High volume, high standardization, commoditycommodity

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Process Life Cycle StagesProcess Life Cycle Stages

1. Project1. Project

2. Job shop2. Job shop

3. Batch3. Batch

4. Assembly line4. Assembly line

5. Continuous5. Continuous

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PRODUCT-PROCESS MATRIX (Figure 4.5)

Low volume, low standardization

Printing

HeavyEquipment

Autoassembly

SugarRefinery

Low volume,Multiple products

Higher volumefew major products

High volume, highstandardization,commodity

Job Shop

Batch

Assemblyline

Continuous NONE

NONE

Unique, one ofa kind product

ProjectBuilding

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Focused OperationsFocused Operations

Company may have products or services with Company may have products or services with different volumes and levels of standardization.different volumes and levels of standardization.

Mixing them in the same operation can cause Mixing them in the same operation can cause significant problems.significant problems.

Focus involves separating different products or Focus involves separating different products or services in the same facility into PWPs.services in the same facility into PWPs.

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Types of FocusTypes of Focus

Product focusProduct focus

Process typeProcess type

TechnologyTechnology

Volume of salesVolume of sales

Make-to-stock and make-to-orderMake-to-stock and make-to-order

New products and mature productsNew products and mature products

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Mass CustomizationMass Customization

A strategy to provide products in lot sizes of A strategy to provide products in lot sizes of one in high volume.one in high volume.

Possible because of flexible manufacturing.Possible because of flexible manufacturing.

Based on economies of scope instead of Based on economies of scope instead of economies of scale, i.e., a high variety of economies of scale, i.e., a high variety of products from a products from a single processsingle process..

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Forms of Mass CustomizationForms of Mass Customization

Modular production & ATO (e.g. Dell)Modular production & ATO (e.g. Dell)

Fast changeover (e.g. Motorola)Fast changeover (e.g. Motorola)

Postponement of options (e.g. Hewlett-Postponement of options (e.g. Hewlett-Packard)Packard)

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Environmental ConcernsEnvironmental Concerns

Technologies for Pollution PreventionTechnologies for Pollution Prevention

Technologies for Pollution ControlTechnologies for Pollution Control

Infrastructure Systems and PracticesInfrastructure Systems and Practices

Other concernsOther concerns– Recycling outputsRecycling outputs– Recycling inputsRecycling inputs– Remanufacturing Remanufacturing

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Cross-Functional Decision MakingCross-Functional Decision Makingor, who has a stake in process choice?or, who has a stake in process choice?

Marketing wants fast response to customer demandMarketing wants fast response to customer demandFinance must find the funds to configure the Finance must find the funds to configure the processprocessHR must provide the properly skilled workersHR must provide the properly skilled workersIT must serve different data requirementsIT must serve different data requirementsAccounting must be flexible in setting performance Accounting must be flexible in setting performance measuresmeasures

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SummarySummaryProduct-Flow CharacteristicsProduct-Flow Characteristics

Approaches to Order FulfillmentApproaches to Order Fulfillment

Product-Process StrategyProduct-Process Strategy

Focused OperationsFocused Operations

Mass CustomizationMass Customization

Environmental ConcernsEnvironmental Concerns

Cross-Functional Decision MakingCross-Functional Decision Making

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End of Chapter Four