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. 5-1

Outline
► Design for goods and services

► Process strategy and capacity planning
► Layout design

Goods and Services Selection
► 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
Goods and Services Selection
► 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

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

Product Strategy Options
► Differentiation
► Shouldice Hospital
► Low cost
► Taco Bell
► Rapid response
► Toyota

Product Life Cycles
► May be any length from a few

days to decades
► The operations function must be
able to introduce new products
successfully

Product Life Cycle
Cost of development and production

$ Sales revenue
Loss Profit
Loss
Introduction Growth Maturity Decline
Figure 5.2

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

Product
Concept
Development Stages
Feasibility Figure 5.3
Customer Requirements
Functional Specifications
Product Specifications Scope for

Scope of design and
product Design Review engineering
development teams
team Test Market
Introduction
Evaluation
Copyright © 2017 Pearson Education, Ltd. 5 - 10

Quality Function Deployment
► Quality function deployment (QFD)
► Determine what will satisfy the customer
► 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

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

QFD House of Quality
Interrelationships
Customer
importance
How to satisfy
ratings
customer wants
assessment
Competitive
What the Relationship
customer matrix
wants
Target values Weighted

rating
Technical
evaluation
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. 5 - 14

Interrelationships
House of Quality Example How to Satisfy

Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
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

Interrelationships

Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Evaluation
Low electricity requirements
Aluminum components
High number of pixels How to Satisfy
Ergonomic design
Customer Wants
Auto exposure
Auto focus

Interrelationships

Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
High relationship Technical

Attributes and
Evaluation
Medium relationship
Low relationship
Lightweight 3
Easy to use 4
Reliable 5
High resolution 1
Relationship matrix
Interrelationships

Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Evaluation
Relationships between
the things we can do
Aluminum components
High number of pixels
Ergonomic design
Auto exposure
Auto focus

Interrelationships

Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Evaluation
Lightweight 3
Easy to use 4
Reliable 5
High resolution 1
Our importance ratings 22 9 27 27 32 25
Weighted rating

Interrelationships
How to Satisfy

Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Evaluation
Company B
Company A
How well do competing
products meet customer
wants
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
Our importance ratings 22 5

Interrelationships
How to Satisfy

Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Evaluation
Failure 1 per 10,000
Panel ranking
Target values
(Technical
2 circuits
attributes)
2’ to ∞
0.5 A
75%
Company A 0.7 60% yes 1 ok G
Technical
evaluation Company B 0.6 50% yes 2 ok F
Us 0.5 75% yes 2 ok G

House of Quality
Aluminum components
Example
High number of pixels
Ergonomic design
Auto exposure
Company A
Company B
Auto focus
Completed
Lightweight 3 G P
House of Easy to use 4 G P
Quality Reliable
Easy to hold steady
5
2
F G
G P
High resolution 1 P P
Our importance ratings 22 9 27 27 32 25
Failure 1 per 10,000

Target values
Panel ranking
(Technical
attributes)
2 circuits
2’ to ∞
0.5 A
75%
Company A 0.7 60% yes 1 ok G
Technical
Company B 0.6 50% yes 2 ok F
evaluation
© 2014 Pearson Education, Inc. Us 0.5 75% yes 2 ok G 5 - 22
House of Quality Sequence
Deploying resources through the organization
in response to customer requirements
Quality
plan
Production
process
Production
Specific
House
process
components
components
House 4
Specific
Design
characteristics
characteristics
3
House
Design
2
requirements
Customer
House
1
Figure 5.4
Organizing for Product
Development
► Traditionally – distinct departments
► Duties and responsibilities are defined
► Difficult to foster forward thinking
► A Champion
► Product manager drives the product
through the product development
system and related organizations

Development
► Team approach
► Cross functional – representatives from
all disciplines or functions
► Product development teams, design for
manufacturability teams, value
engineering teams
► Japanese “whole organization”
approach
► No organizational divisions
Development
► Product development teams
► Market requirements to product success
► Cross functional teams often involving
vendors
► Open, highly participative environment
► Concurrent engineering
► Simultaneous performance of product
development stages

Product Development
Continuum
► Product life cycles are becoming
shorter and the rate of technological
change is increasing
► Developing new products faster can
result in a competitive advantage
► Time-based competition

Product Development
Continuum
External Development Strategies
Figure 5.6 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 Cost of product development Shared

Lengthy Speed of product development Rapid and/
or Existing
High Risk of product development Shared

Product Development
Continuum
► Purchasing technology by acquiring
a firm
► Speeds development
► Issues concern the fit between the
acquired organization and product and
the host
► Joint Ventures
► Both organizations learn
► Risks are shared
Product Development
Continuum
► Alliances
► Cooperative agreements between
independent organizations
► Useful when technology is developing
► Reduces risks

Defining a Product
► 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

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

Product Documents
► Engineering drawing
► Shows dimensions, tolerances, and
materials
► Shows codes for Group Technology
► Bill of Material
► Lists components, quantities and where
used
► Shows product structure

Engineering Drawings
Figure 5.8

Bills of Material
BOM for a Panel Weldment
NUMBER DESCRIPTION QTY

A 60-71 PANEL WELDM’T 1
A 60-7 LOWER ROLLER ASSM. 1
R 60-17 ROLLER 1
R 60-428 PIN 1
P 60-2 LOCKNUT 1
A 60-72 GUIDE ASSM. REAR 1
R 60-57-1 SUPPORT ANGLE 1
A 60-4 ROLLER ASSM. 1
02-50-1150 BOLT 1
A 60-73 GUIDE ASSM. FRONT 1
A 60-74 SUPPORT WELDM’T 1
R 60-99 WEAR PLATE 1
Figure 5.9 (a)
02-50-1150 BOLT 1

Bills of Material
Hard Rock Cafe’s DESCRIPTION QTY
Hickory BBQ Bacon Bun 1
Cheeseburger Hamburger patty 8 oz.
Cheddar cheese 2 slices
Bacon 2 strips
BBQ onions 1/2 cup
Hickory BBQ sauce 1 oz.
Burger set
Lettuce 1 leaf
Tomato 1 slice
Red onion 4 rings
Pickle 1 slice
French fries 5 oz.
Seasoned salt 1 tsp.
Figure 5.9 (b) 11-inch plate 1
HRC flag 1

Service Design
► 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

Process-Chain-Network (PCN)
Analysis
Figure 5.12

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

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

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

▶Limit the options

▶Improves efficiency and ability to meet
customer expectations
▶Delay customization
▶Modularization
▶Eases customization of a service

▶Automation
▶Reduces cost, increases customer
service
▶Moment of truth
▶Critical moments between the customer
and the organization that determine
customer satisfaction

Documents for Services
► High levels of customer interaction

necessitates different
documentation
► Often explicit job instructions
► Scripts and storyboards are other
techniques

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.

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

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

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
$2,500,000 Revenue
(.4) – 1,000,000 Mfg cost ($40 x 25,000)
Purchase CAD – 500,000 CAD cost
High sales
$1,000,000 Net
$800,000 Revenue
(.6) Low sales – 320,000 Mfg cost ($40 x 8,000)
– 500,000 CAD cost
Hire and train engineers – $20,000 Net loss
(.4)
High sales
EMV (purchase CAD system) = (.4)($1,000,000) + (.6)(– $20,000)
(.6)
Low sales
Do nothing
Figure 5.13
$2,500,000 Revenue
(.4) – 1,000,000 Mfg cost ($40 x 25,000)
$388,000 High sales
$1,000,000 Net
$800,000 Revenue
– 500,000 CAD cost
(.4)
High sales
EMV (purchase CAD system) = (.4)($1,000,000) + (.6)(– $20,000)
= $388,000
(.6)
Low sales
Do nothing
Figure 5.13
$2,500,000 Revenue
(.4) – 1,000,000 Mfg cost ($40 x 25,000)
$388,000 High sales
$1,000,000 Net
$800,000 Revenue
– 500,000 CAD cost
$365,000
$2,500,000 Revenue
(.4) – 1,250,000 Mfg cost ($50 x 25,000)
High sales – 375,000 Hire and train cost
$875,000 Net
$800,000 Revenue
(.6) – 400,000 Mfg cost ($50 x 8,000)
Low sales – 375,000 Hire and train cost
Do nothing $0 $25,000 Net
$0 Net Figure 5.13

Transition to Production
► Know when to move to production
► Product development can be viewed as
evolutionary and never complete
► 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
► Ensures successful production

Transition to Production
► Responsibility must also transition as the
product moves through its life cycle
► Line management takes over from design
► Three common approaches to managing
transition
► Project managers
► Product development teams
► Integrate product development and
manufacturing organizations

Process Strategy
The objective is to create a process

to produce offerings that meet
customer requirements within cost
and other managerial constraints

Process Strategies
► How to produce a product or provide a
service that
► Meets or exceeds customer requirements
► Meets cost and managerial goals
► Has long term effects on
► Efficiency and production flexibility
► Costs and quality

Process, Volume, and Variety
Figure 7.1 Volume
Low Repetitive High
Volume Process Volume
High Variety
one or few units Process Focus Mass Customization
per run, projects, job shops (difficult to achieve, but
(allows (machine, print, huge rewards)
customization) hospitals, Dell Computer
restaurants)
Variety (flexibility)
Arnold Palmer
Hospital
Changes in
Modules
modest runs, Repetitive
standardized (autos, motorcycles,
modules home appliances)
Harley-Davidson
Changes in
Attributes (such as Poor Strategy
grade, quality, size, Product Focus
(Both fixed and (commercial baked goods,
thickness, etc.) variable costs
long runs only steel, glass, beer)
are high) Frito-Lay
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
Process Focus
► Facilities are organized around specific
activities or processes
► General purpose equipment and skilled
personnel
► High degree of product flexibility
► Typically high costs and low equipment
utilization
► Product flows may vary considerably
making planning and scheduling a
challenge
Many inputs
Process Focus (surgeries, sick patients,
baby deliveries, emergencies)
(low-volume, high-variety,
Many departments and
intermittent processes) many routings
Arnold Palmer Hospital
Figure 7.2(a) Many different outputs

(uniquely treated patients)
Repetitive Focus
► Facilities often organized as assembly
lines
► Characterized by modules with parts and
assemblies made previously
► Modules may be combined for many
output options
► Less flexibility than process-focused
facilities but more efficient

Raw materials and
Repetitive module inputs
(multiple engine models,
wheel modules)
Focus
Few
modules
(modular)
Harley Davidson
Figure 7.2(b) Modules combined for many

Output options
(many combinations of motorcycles)
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
Few inputs
Product Focus (corn, potatoes, water,
seasoning)
(high-volume, low-variety,
continuous process)
Frito-Lay
Output variations in size,

Figure 7.2(c) shape, and packaging
(3-oz, 5-oz, 24-oz package
labeled for each material)
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

Many parts and
Mass component inputs
(chips, hard drives,
Customization software, cases)
Many modules
(high-volume, high-variety)
Dell Computer
Figure 7.2(b) Many output versions

(custom PCs and notebooks)
Mass Customization
► Imaginative product design
► Flexible process design
► Tightly controlled inventory
management
► Tight schedules
► Responsive partners in the supply-
chain

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
► Three time horizons
Planning Over a Time Horizon
Figure S7.1
Options for Adjusting Capacity
Time Horizon
Long-range Design new production processes
planning Add (or sell existing)
long-lead-time equipment
*
Acquire or sell facilities
Acquire competitors
Intermediate-
range Subcontract Build or use inventory
planning Add or sell equipment More or improved training
(aggregate Add or reduce shifts Add or reduce personnel
planning)
Schedule jobs
Short-range
planning
(scheduling)
* Schedule personnel
Allocate machinery
Modify capacity Use capacity

* Difficult to adjust capacity as limited options exist
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

TABLE S7.1 Capacity Measurements
MEASURE DEFINITION EXAMPLE
Design capacity Ideal conditions exist Machines at Frito-Lay are designed to
during the time that produce 1,000 bags of chips/hr., and the plant
the system is operates 16 hrs./day.
available Design Capacity = 1,000 bags/hr. × 16 hrs.
= 16,000 bags/day

Effective capacity Design capacity Frito-Lay loses 3 hours of output per day
minus lost output (= 0.5 hrs./day on preventive maintenance,
because of planned 1 hr./day on employee breaks, and 1.5
resource hrs./day setting up machines for different
unavailability (e.g., products).
preventive Effective Capacity = 16,000 bags/day
maintenance, – (1,000 bags/hr.)
machine (3 hrs./day)
setups/changeovers, = 16,000 bags/day
changes in product – 3,000 bags/day
mix, scheduled = 13,000 bags/day
breaks)

Actual output Effective capacity On average, machines at Frito-Lay are not
minus lost output running 1 hr./day due to late parts and
during unplanned machine breakdowns.
resource idleness Actual Output = 13,000 bags/day
(e.g., absenteeism, – (1,000 bags/hr.)
machine breakdowns, (1 hr./day)
unavailable parts, = 13,000 bags/day
quality problems) – 1,000 bags/day
= 12,000 bags/day

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

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

Capacity Considerations
1. Forecast demand accurately

2. Match technology increments and
sales volume
3. Find the optimum operating size
(volume)
4. Build for change

Economies and Diseconomies of
Scale
Figure S7.2
(sales per square foot)
Average unit cost
1,300 sq ft 8,000 sq ft
store 2,600 sq ft store
store
Economies Diseconomies
of scale of scale
1,300 2,600 8,000
Number of square feet in store
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
Complementary Demand
Figure S7.3
Patterns
Combining the
two demand
patterns reduces
the variation
4,000 –
Sales in units
Snowmobile
3,000 – motor sales
2,000 –
1,000 – Jet ski

engine
sales
JFMAMJJASONDJFMAMJJASONDJ
Time (months)

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

Service-Sector Demand
and Capacity Management
► Demand management
► Appointment, reservations, FCFS rule
► Capacity
management
► Full time,
temporary,
part-time
staff

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

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

Break-Even Analysis
–
Total revenue line
900 –
800 –
Break-even point Total cost line
700 – Total cost = Total revenue
Cost in dollars
600 –
500 –
Variable cost
400 –
300 –
200 –
100 – Fixed cost

| | | | | | | | | | | |
0 100 200 300 400 500 600 700 800 900 1000 1100
Figure S7.5
Volume (units per period)
Break-Even Analysis
Assumptions
► Costs and revenue are linear
functions
► Generally not the case in the real
world
► We actually know these costs
► Very difficult to verify
► Time value of money is often
ignored
Break-Even Analysis
BEPx = break-even point x = number of units
in units produced
BEP$ = break-even point TR = total revenue = Px
in dollars F = fixed costs
P = price per unit V = variable cost per unit
(after all TC = total costs = F + Vx
discounts)
Break-even point occurs when
TR = TC F
or BEPx =
P–V
Px = F + Vx

Break-Even Analysis
BEPx = break-even point x = number of units
in units produced
BEP$ = break-even point TR = total revenue = Px
in dollars F = fixed costs
P = price per unit V = variable cost per unit
(after all TC = total costs = F + Vx
discounts)
F Profit = TR - TC
BEP$ = BEPx P = P
P–V = Px – (F + Vx)
F = Px – F – Vx
= (P – V)/P
= (P - V)x – F
F
=
1 – V/P
Break-Even Example
Fixed costs = $10,000 Material = $.75/unit
Direct labor = $1.50/unit Selling price = $4.00 per unit
F $10,000
BEP$ = =
1 – (V/P) 1 – [(1.50 + .75)/(4.00)]
$10,000
= = $22,857.14
.4375

Break-Even Example
Fixed costs = $10,000 Material = $.75/unit
Direct labor = $1.50/unit Selling price = $4.00 per unit
F $10,000
BEP$ = =
1 – (V/P) 1 – [(1.50 + .75)/(4.00)]
$10,000
= = $22,857.14
.4375
F $10,000
BEPx = = = 5,714
P–V 4.00 – (1.50 + .75)

Break-Even Example
50,000 –
Revenue
40,000 –
Break-even
point Total
30,000 –
Dollars
costs
20,000 –
Fixed costs
10,000 –
| | | | | |
0 2,000 4,000 6,000 8,000 10,000
Units

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

P = price per unit
F = fixed costs
W = percent each product is of total dollar sales
expressed as a decimal
i = each product
Multiproduct Example
Fixed costs = $3,000 per month
ANNUAL FORECASTED
ITEM 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
1 2 3 4 5 6 7 8 9
ANNUAL ANNUAL WEIGHTED
FORECASTED SELLING VARIABLE FORECASTED % OF SALES CONTRIBUTION
ITEM (i) SALES UNITS PRICE (Pi) COST (Vi) (Vi/Pi) 1 - (Vi/Pi) SALES $ (Wi) (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

Baked 7,000
potato 2.00 1.00 .50 .50 14,000 .193 .097
$72,500 1.000 .470

MultiproductBEP
Example F
=
éæ ö $
Vi ù
Fixed costs = $3,000 per month åêêç1- P ÷ ´ Wi úú( )
ëè i ø û
ITEM PRICE COST ANNUAL FORECASTED SALES UNITS
$3,000 x 12
Sandwich $5.00 $3.00 = 9,000 = $76,596
.47
Drink 1.50 .50 9,000
Baked potato 2.00 1.00 Daily $76,596
7,000
sales 312 days = $245.50
=
1 2 3 4 5 6 7 8
.621 x $245.50
ANNUAL WEIGHTED
SELLING VARIABLE FORECASTED = 30.5 CONTRIBUTION
31
ITEM (i) PRICE (P) COST (V) (V/P) 1 - (V/P) $5.00
SALES $ % OF SALES (COL 5 X COL 7)
Sandwiches
Sandwich $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

Reducing Risk with
Figure S7.6 Incremental Changes
(a) Leading demand with (b) Leading demand with a
incremental expansion one-step expansion
New
New capacity
capacity
Demand
Demand
Expected Expected
demand demand
(c) Lagging demand with (d) Attempts to have an average

incremental expansion capacity with incremental
New expansion
capacity New
Demand
Expected Demand capacity Expected

demand demand

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

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

Types of Layout
1. Office layout
2. Retail layout
3. Warehouse layout
4. Fixed-position layout
5. Process-oriented layout
6. Work-cell layout
7. Product-oriented layout

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 trade-
offs between space and material
handling

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)

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

Good Layouts Consider
► Material handling equipment
► Capacity and space requirements
► Environment and aesthetics
► Flows of information
► Cost of moving between various work
areas

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

Relationship Chart
Figure 9.1
Retail Layout
▶Objective is to maximize profitability

per square foot of floor space
▶Sales and profitability vary directly
with customer exposure

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
Store Layout
Figure 9.2
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
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

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
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
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

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

▶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

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
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
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

Staffing and Balancing Work
Cells
Determine the takt time
Total work time available
Takt time =
Units required to
satisfy customer demand
Determine the number

of operators required
Total operation time required

Workers required =
Takt time

Staffing Work Cells Example
600 mirrors per day required
Mirror production scheduled for 8 hours per day
From a work balance 60
chart total operation 50

time = 140 seconds
Standard time required

40
30
20
10
Figure 9.10
0
Assemble Paint Test Label Pack for
shipment
Copyright © 2017 Pearson Education, Ltd. Operations 5 - 117
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
Total operation time required
Workers required = Takt time
= 140 / 48 = 2.92
Repetitive and Product-
Oriented 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

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

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

Advantages
1. Low variable cost per unit
2. Low material handling costs
3. Reduced work-in-process inventories
4. Easier training and supervision
5. 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

McDonald's Assembly Line
Figure 9.11

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
Wing Component Example
TABLE 9.2 Precedence Data for Wing Component
ASSEMBLY TIME TASK MUST FOLLOW
TASK (MINUTES) TASK LISTED BELOW
A 10 – This means that
B 11 A tasks B and E
cannot be done
C 5 B until task A has
D 4 B
been completed
E 11 A
F 3 C, D
G 7 F
H 11 E
I 3 G, H
Total time 65

Precedence Data for Wing
TABLE 9.2 Component 480 available mins
TASK MUST
per day
ASSEMBLY TIME FOLLOW TASK 40 units required
TASK (MINUTES) LISTED BELOW
A 10 –
B 11 A
C 5 B
D 4 B Figure 9.12
E 11 A 5
F 3 C, D C
G 7 F 10 11 3 7
H 11 E A B F G
4
I 3 G, H 3
D I
Total time 65 11 11
E H

Precedence Data for Wing
TABLE 9.2 Component 480 available mins
TASK MUST
per day
ASSEMBLY TIME FOLLOW TASK 40 units required
TASK (MINUTES) LISTED BELOW
A 10 –
Production time available
B 11 A per day
C 5 Cycle
B time = Units required per day
D 4 B Figure 9.12
= 480 / 40
E 11 A 5
F 3 C, D = 12 minutes per unit
C
10 n
11 3 7
åB Time for task
G 7 F
H 11 E A F i G
Minimum number i=1 4
I 3 G, H
of workstations = 3
11
Cycle
D time
11 I
Total time 65
= 65E/ 12 H
= 5.42, or 6 stations
Layout Heuristics That May Be Used to Assign Tasks
TABLE 9.3
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 From the available tasks, choose the
weight 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 From the available tasks, choose the
following tasks task with the least number of subsequent
tasks

480 available mins
Figure 9.13 per day
40 units required
Cycle time = 12 mins
Minimum
Station 5 workstations = 5.42 or 6
2
C
10 11 3 7
A B F G
4 3
D Station 3
Station 4 I
11 11
Station 6
Station Station 6
1 E H
Station Station
3 5
Precedence Data for Wing 480 available mins
TABLE 9.2 Component per day
TASK MUST
ASSEMBLY TIME FOLLOW TASK
40 units required
TASK (MINUTES) LISTED BELOW Cycle time = 12 mins
A 10 –
Minimum
B 11 A
workstations = 5.42 or 6
C 5 B
D 4 B Figure 9.12
E 11 A 5
F 3 C, D ∑ Task times C
Efficiency
G
= 7 10 11 3
F workstations) x (Largest cycle 7
(Actual number of time)
H 11 E A B F G
I
= 65 minutes
3
/ ((6 stations)
G, H
x (12 minutes))4 3
= 90.3% D I
Total time 65 11 11
H E
Idle Time = ((6 stations) × (12 minutes)) – 65 minutes = 7 minutes

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