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# Manufacturing Processes

Operations Management
Dr. Ron Tibben-Lembke
Break-Even Analysis
Given a fixed cost, how many do we
have to make to break even?
 A: buy units @ \$200
 B: Make on lathe: \$80,000 + \$75
each
 C: Machining Center: \$200,000 +
\$15 each
Which is the cheapest way?
Break-Even Analysis
 If we only sell 1, which is cheapest?
 If we sell a gazillion, which is
cheapest?
Break-Even
Total Costs

Outsource

Draw Lowest
Fixed Cost Line

Volume
Break-Even
Total Costs

Outsource
Lathe

Cost

Volume
Break-Even
Total Costs

Outsource
Lathe

Machining
Center

Volume
Break-Even
Total Costs

Outsource
Outsource Lathe
Lathe

Machining
Center

Machining
Center

Volume
Break-Even Analysis
 When does Lathe become cheaper?
 80,000 + 75*x = 200*x
 80,000 = 125*x
 x = 640
Break-Even Analysis
Total Costs

Outsource
Outsource Lathe
Lathe

Machining
Center

Machining
Center

640 Volume
Break-Even Analysis
 When does Machining Center become
cheaper?
 80,000 + 75*x = 200,000 + 15*x
 120,000 = 60*x
 x = 2,000
Break-Even Analysis
Total Costs

Outsource
Outsource Lathe
Lathe

Machining
Center

Machining
Center

## 640 2,000 Volume

Break-Even Analysis
 How much do sales have to grow to
make an investment pay off?
 Fixed costs = \$10,000
 Direct labor = \$1.50 / unit
 Material = \$0.75 / unit
 Sales price = \$4.00
 How many units must sell to break
even?
Break-Even Analysis
 How to measure the value of a dollar
saved tomorrow?
 Can you say “Net Present Value?”
Break-Even Analysis
 How to measure the value of a dollar
saved tomorrow?
 Can you say “Net Present Value?”
I knew you could.
Process Flow Structures
 Job Shop - low standardization, every order
is a different product, new design
 Batch Shop - Stable line of products,
produced in batches
 Assembly Line - Discrete parts moving from
workstation to workstation
 Continuous Flow - Undifferentiated flow of
product (beer, paper, etc.)
Process Strategy

Variety
High project

Workcenter Manufacturing
Cell
Medium Assembly
Line Continuous
Process
Low

## Low Medium High

Volume
Process Strategy

Variety
High Process Focus
(job shops)

Repetitive (cars,
Medium motorcycles)

Product Focus
(steel, glass)
Low

## Low Medium High

Volume
Process Focus (Job Shop)
 Low volume, high variety, “do it all”
 “Job shop” environment (e.g. Kinko’s)
 High amount of flexibility
 Each job is different
 Relatively high cost per unit
 Very high flexibility
Process Selection / Evolution
 Products tend to move through the
four stages over life cycle.
 Unit costs decrease as standardization
increases, and production increases.
 Flexibility decreases as volume,
standardization increase
Design for Manufacturing -Before
Design for Manufacturing-After
Designing the System
 How do we decide where to put
things?
Layout Types
 Project or Fixed-position layout
 Process-oriented layout
 Product-oriented layout
 Office layout
 Warehouse layout
 Retail/service layout
Project or Fixed-Position

##  Design is for stationary project

 Workers & equipment come to site
 Complicating factors
 Limitedspace at site
 Changing material needs
 Examples
 Shipbuilding
 Highway construction
Process-Oriented Layout
 Design places departments with large
flows of material or people together
 Dept. areas have similar processes
 e.g., All x-ray machines in same area
 Usedwith process-focused processes
 Examples
 Hospitals
 Machine shops
Process-Oriented Layout
Floor Plan

## Table Saws Office

Corel Corp.

Drill Presses

Tool Room

Process Layout
+ Allows specialization - focus on one
skill
+ Allows economies of scale - worker
can watch several machines at once
+ High level of product flexibility
-- Encourages large lot sizes
-- Difficult to incorporate into JIT
-- Makes cross-training difficult
Process-Oriented Layout Steps
 Construct ‘from-to-matrix’
 Determine space needs for each dept.
 Develop initial schematic diagram
 Determine layout cost, Σ Σ Xij • Cij
 By trial-and-error, improve initial layout
 Prepare detailed plan
 Includes factors besides cost
Process-Oriented Example
You work in facilities engineering. You want
to find the cost of this layout. The cost of
The cost between nonadjacent dept. is \$2.

## Dept. 1 Dept. 2 Dept. 3

40 ft.
Dept. 4 Dept. 5 Dept. 6

60 ft.
There are 6! or 720 possibilities! Clearly,
we can’t look at them all.
From-to-Matrix

Department
1 2 3 4 5 6
50 100 0 0 20
1
30 50 10 0
2
20 0 100
3
Dept. 50 0
4 Number of Trips
0
5
6
Schematic Diagram & Cost
100 Dept. Dept. Cost
1 3 \$ 200
1 2 \$ 50
1 6 \$ 40
50 30 4 2 \$ 50
1 2 3
4 3 \$ 40
10 4 5 \$ 50
20 2 5 \$ 10
50 2 3 \$ 30
100 3 6 \$ 100
20
4 5 6

## 50 Total Cost \$570

Schematic Diagram & Cost
Dept. Dept. Cost
30 1 2 \$ 50
1 3 \$ 100
1 6 \$ 20
4 2 \$ 50
50 100 4 3 \$ 40
2 1 3 4 5 \$ 50
2 5 \$ 10
10 2 3 \$ 60
50 100 3 6 \$ 100
20
20
4 5 6
50
Total Cost \$480
Product-Oriented Layout

 Facility
organized around product
 Design minimizes line imbalance
 Delay between work stations
 Types:Fabrication line; assembly line
 Examples
 Auto assembly line
 Brewery
 Paper manufacturing.
Cellular Layout (Work Cells)
 Special case of process-oriented
layout
 Consists of different machines brought
together to make a product
 May be temporary or permanent
 Example: Assembly line set up to
produce 3000 identical parts in a
job shop
Work Cell Floor Plan

## Saws Drills Office

Work Cell
Tool Room
Increases:
Equipment
utilization
Reduces: Employee
Inventory participation
Floor space Quality
Direct labor
costs
Work Cell Layout
+ Facilitates cross-training
+ Can easily adjust production volumes
+ Easy to incorporate into JIT
-- Requires higher volumes to justify
-- May require more capital for
equipment
Office Layout Example
Relationship Chart
Ordinary
1 closeness:
1 President 2 President (1)
O 3 & costing (2)
2 Costing U 4
A A
3 Engineering I
O Absolutely
4 President’s Secretary necessary:
President (1)
I = Important; U = Unimportant & secretary (4)
Relationship Chart
1
1 2
O 3
2 E 4
I O 5
3 O U 6
U I U 7
4 U
U I U 8
9
U I U
5 OA U O U 10
I U U I U
6 U U U I
E U U U
7 U
U
I
U I
A
8 E U
U U
9 A
E
10
Assembly-Line Balancing
Assembly-Line Balancing
 Situation:Assembly-line production.
 Many tasks must be performed, and
the sequence is flexible
 Parts at each station same time
 Tasks take different amounts of time
 How to give everyone enough, but not
too much work for the limited time.
Product-Oriented Layout

Operations

Belt
Conveyor
Precedence Diagram
Draw precedence graph
(times in seconds)

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Cycle Time
 The more units you want to produce per hour, the
less time a part can spend at each station.
 Cycle time = time spent at each spot

##  C = 800 min / 32 = 25 min

 800 min =Production
13:20 Time in each day
C=
Required output per day (in units)
Number of Workstations
 Given required cycle time, find out the
theoretical minimum number of
stations

## Sum of task times (T)

Nt =
Cycle Time (C)
 Nt = 97 / 25 = 3.88 = 4 (must round
up)
Assignments
 withlargest number of following tasks
 OR by longest time to complete

## Break ties by using the other rule

Nodes # after
C 6 Choose C first, then, if possible,
D 5 add D to it, then A, if possible.
A 4
B,E,F 3
G,H 2
I 1
Precedence Diagram
Draw precedence graph
(times in seconds)

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Nodes # after
A 4
B,E,F 3 A could not be added to first
station, so a new station must
G,H 2 be
I 1 created with A.

## B, E, F all have 3 stations after,

so use tiebreaker rule: time.
B=5
E=8
F=3
Use E, then B, then F.
Precedence Diagram
E cannot be added to A, but E can be

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Precedence Diagram
Next priority B can be added to A.

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Precedence Diagram
Next priority B can be added to A.
Next priority F can’t be added to either.

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Nodes # after
G,H 2
G and H tie on number coming
I 1 after.
G takes 15, H is 12, so G goes
first.
Precedence Diagram
G can be added to F.

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Precedence Diagram
I is next, and can be added to H, but J

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Calculate Efficiency
 We know that at least 4 workstations
will be needed. We needed 5.
Efficiencyt =
Actual # WS * Cycle Time

= 97 / ( 5 * 25 ) = 0.776
 We are paying for 125 minutes of
work, where it only takes 97.
Precedence Diagram
Try choosing longest activities first.
A is first, then G, which can’t be added to A.

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Precedence Diagram
H and I both take 12, but H has more
coming after it, then add I.

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Precedence Diagram
D is next, followed by E, so we combine them, but we could
have combined E&G. We’ll try that later.

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Precedence Diagram
J is next, all alone, followed by C and B.

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Precedence Diagram
F is last. We end up with 6 workstations.

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Precedence Diagram
Go back and try combining G and E

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Precedence Diagram
J is next, all alone. C is added to D, and

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Can we do better?

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Precedence Diagram
F can be added to C&D. Five WS again.

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Reduced CT
 Efficiency = 97/100 = 0.97. Much
better.
 If we set CT = 20, we can produce 3
units per hour.
 Goal of 32 units can be produced in 20
* 32 = 640 minutes.
 Significant savings over original 800
minutes.
Can we do better?
If we have to use 5 stations, we can get a
solution with CT = 20.

B
A G
5
20 15
E I J
C D 8
12 7
H
5 10 F 12
3
Calculate Efficiency
 With 5 WS at CT = 20

## Sum of task times (T)

Efficiencyt =
Actual # WS * Cycle Time

= 97 / ( 5 * 20 ) = 0.97
 We are paying for 100 minutes of
work, where it only takes 97.
Output and Labor Costs
 With 20 min CT, and 800 minute workday
 Output = 800 min / 20 min/unit = 40
 Don’t need to work 800 min
 Goal 25 units: 25 * 20 = 500 min/day
 5 workers * 500 min = 2,500 labor min.
 We were trying to achieve
 4 stations * 800 min = 3,200 labor min.
 Significant labor cost savings
 Long tasks make it hard to get efficient
combinations.
 Consider splitting tasks, if physically
possible.
 If not:
 Parallel workstations
 use skilled (faster) worker to speed up
Warehouse Layout
 Design balances space (cube)
utilization & handling cost
 Similar to process layout
 Items moved between dock
& various storage areas
 Optimum layout depends on
Variety of items
stored
No. items picked

Warehouse Flow

Receiving Shipping
Warehouse Layout

## Try to organize storage in such a way that order pickers

can move through the product in a logical and timely
manner.
Warehouse Layout
 Fastest near the front
 Fastest within easy reach
 Bulk storage vs. Single item picking
 Serpentine vs. oval picking order
 Restocking: frequency, safety stock
Cross-Docking
In-coming
 Transferring Outgoing
goods
from incoming
trucks at
receiving docks
to outgoing trucks
at shipping docks
 Avoids placing
goods into
storage
Retail/Service Layout
 Design maximizes product exposure to
customers, profitability per square foot
 Decision variables
 Store flow pattern
 Allocation of (shelf) space to products
 Types
 Griddesign Video
 Free-flow design
Retail/Service Layout
Grid Design
Grocery Store
Milk

Check-
Office Carts
out
Retail/Service Layout
Free-Flow Design
Apparel Store

Feature Trans.
Counter

Display
Table
Retail Store
Flow Guidelines

##  “Prisoner” aisles make you enter

store in a particular route, and pass
by certain displays
 Often contain less profitable (for the
store) brands
 “Decompression Zone” people walk
past first rows of items before settling
into shopping mode.
Retail Store
Flow Guidelines

##  Bakery, coffee shop,

by entrance to stimulate
taste buds
 Siren song of the
Starbucks (Safeway)
 Food samplers throughout
store do same
Retail Store Flow Guidelines

 Frequently purchased
Meat
items at far sides of stores
so you have to go through
entire store (produce or
meat).
 Profitable sections like
produce placed where you
keep running into them

Milk
Produce
Retail Store Flow Guidelines

##  Major items in middle of

aisles so you have to walk
down into middle of aisle
(Cereal, peanut butter)
 ‘Power items’ on both sides
of aisle so you have to look
at both sides Peanut
Butter

Cereal
Retail Store
Flow Guidelines
Cereal

 Quality of produce
section important in
customer decisions
visit, so produce is often
prominently displayed Peanut
upon entrance Butter
 People like to see what
they’re looking for, not
Retail Store
Flow Guidelines

##  End caps for high-

visibility sale items
 Large quantities of
inventory serve as
“psychic stock”
 If there is a lot of it, it
must be on sale
 Stimulates sales

Corel
Corp.
Retail Store
Flow Guidelines
 Eliminate cross-over
aisles:
 less wasted floor
space,
 you have to look at
more items,
 the more time you
spend in the store, the
Shelf Space Planogram

##  Computerized tool 5 facings

for shelf-space

PERT

PERT
PERT

PERT

PERT
management
 Generated from
store’s scanner data
on sales

SUAVE
SUAVE
VO-5

VO-5

VO-5
 Often supplied by

VO-5
VO-5
manufacturer
 Example: P&G
2 ft.
Shelf Placement
 Companies prefer to be at eye-level or
at child-reaching level
 Close to leading brands or high-draw
items: snack foods next to the peanut
butter or across from the cereal:
 Lots of kids visit the area
Slotting Fees
 Manufacturer pays retailer to get a product into a
store
 35,000 new grocery products per year
 Grocery stores often stock 30,000 items
 Impossible to evaluate all new products to choose
the best new ones
 Slotting fees guarantee grocer profits on a product,
help balance risk of trying unknown product.
 Grocery is a narrow margin business, slotting fees
can represent a significant revenue source.
Slotting Fees
 Senate Small Business Committee held
hearings on them in 2000.
 Industry refused to cooperate with GAO.
 Growers of produce (not just brand names)
now getting involved and complaining.
 Small businesses claim they can’t afford the
big payments big companies can make.
 Advocates say small companies can “put
their money where their mouths are” just like
anyone else
Perimeter Items