CH 06 Russell

Chapter 6
Processes, Technology, and Capacity
Operations
Operations Management
Management -- 55thth Edition
Edition
Roberta Russell & Bernard W. Taylor, III
Beni Asllani
Copyright 2006 John Wiley & Sons, Inc. University of Tennessee at Chattanooga
Lecture Outline
 Process Planning
 Process Analysis
 Process Innovation
 Technology Decisions
 Capacity Decisions
Copyright 2006 John Wiley & Sons, Inc. 6-2

Process Planning
 Process
 a group of related tasks with specific inputs and
outputs
 Process design
 tasks need to be done and coordinated among
functions, people, and organizations
 Process planning
 converts designs into workable instructions for
manufacture or delivery
 Process strategy
 an organization’s overall approach for physically
producing goods and services

Process Strategy
 Capital intensity
 mix of capital (i.e., equipment, automation) and labor
resources used in production process
 Process flexibility
 ease with which resources can be adjusted in response to
changes in demand, technology, products or services, and
resource availability
 Vertical integration
 extent to which firm will produce inputs and control outputs
of each stage of production process
 Customer involvement
 role of customer in production process

Make or Buy Decisions
 Cost  Speed
 Capacity  Reliability
 Quality  Expertise

Sourcing Continuum
Vertical Joint Strategic Arms-Length

Integration Venture Alliance Relationship
(100% (equity (long-term (short-term contract
ownership) partner) supplier or
contract; single purchasing
collaborative decision)
relationship)
Source: Adapted from Robert Hayes, Gary Pisano, David Upton, and
Steven Wheelwright, Operations Strategy and Technology: Pursuing
the Competitive Edge (Hoboken, NJ: 2005), p. 120

Process Selection
 Projects
 one-of-a-kind production of a product to customer order
 Batch production
 systems process many different jobs through the system in
groups or batches
 Mass production
 produces large volumes of a standard product for a mass
market
 Continuous production
 used for very-high volume commodity products

Types of Processes
PROJECT BATCH MASS CONT.
Made-to- Made-to-
Type of
Unique order stock Commodity
product
(customized) (standardized )
One-at-a- Few
Type of Mass Mass
customer time individual
market market
customers
Product
demand Infrequent Fluctuates Stable Very stable
Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage (New York:McGraw-Hill, 2001), p. 210

Types of Processes (cont.)
Demand Low to
Very low High Very high
volume medium
No. of Infinite Many,

different Few Very few
products variety varied
Repetitive, Continuous,
Production Long-term Discrete, job
system assembly process
project shops
lines industries

Varied General- Special- Highly

Equipment
purpose purpose automated
Primary Mixing,
type of Specialized
Fabrication Assembly treating,
work contracts
refining
Experts, Limited
Worker Wide range Equipment
skills crafts- range of
of skills monitors
persons skills

Efficiency, Highly efficient,

Custom work, Flexibility,
Advantages latest technology quality
speed, large capacity,
low cost ease of control
Capital
Non-repetitive, Costly, slow, Difficult to change,
Dis- investment;
small customer difficult to far-reaching errors,
advantages lack of
base, expensive manage limited variety
responsiveness
Machine shops, Automobiles,

Construction, print shops, televisions, Paint, chemicals,
Examples shipbuilding,
bakeries, computers, foodstuffs
spacecraft
education fast food

Process Selection with
Break-Even Analysis
 Cost
 Fixed costs
 constant regardless of the number of units produced
 Variable costs
 vary with the volume of units produced
 Revenue
 price at which an item is sold
 Total revenue
 is price times volume sold
 Profit
 difference between total revenue and total cost

Break-Even Analysis (cont.)
Total cost = fixed cost + total variable cost

TC = cf + vcv
Total revenue = volume x price
TR = vp
Profit = total revenue - total cost
Z = TR – TC = vp - (cf + vcv)

Break-Even Analysis (cont.)
TR = TC
vp = cf + vcv
vp - vcv = cf
v(p - cv) = cf
cf
v = p - cv
Solving for Break-Even Volume

Break-Even Analysis: Example
Fixed cost = cf = $2,000

Variable cost = cv = $5 per raft
Price = p = $10 per raft
Break-even point is
cf
2000
v= = = 400 rafts
p - cv 10 - 5

Break-Even Analysis: Graph
$3,000 — Total
cost
line
$2,000 —
$1,000 —
Total
revenue
line
400 Units
Break-even point

Process Selection
Process A Process B
$2,000 + $5v = $10,000 + $2v
$3v = $8,000
v = 2,667 rafts
Below 2,667, choose A

Above 2,667, choose B

$20,000 — Total cost of
process A
Process $15,000 — Total cost of
Selection: $10,000 —
process B
Graph
$5,000 —
Choose Choose
process A process B
| | | |
1000 2000 3000 4000 Units
Point of indifference = 2,667 Units
Example 4.2

Process Plans
 Set of documents that detail manufacturing

and service delivery specifications
 assembly charts
 operations sheets
 quality-control check-sheets

Sesame seed top bun
Beef patty
Assembly Chart
SA
Salt for a Big Mac
Cheese
Lettuce
First-layer assembly
Sauce
Onions
Middle bun
Beef patty
SA
Salt
Cheese
Lettuce
Second-layer assembly
Sauce
Onions
Pickles
Bottom bun
Wrapper
Completed Big Mac

An Operations Sheet for a Plastic Part
Part name Crevice Tool
Part No. 52074
Usage Hand-Vac
Assembly No. 520
Oper. No. Description Dept. Machine/Tools Time

10 Pour in plastic bits 041 Injection molding 2 min
20 Insert mold 041 #076 2 min
30 Check settings 041 113, 67, 650 20 min
& start machine
40 Collect parts & lay flat 051 Plastics finishing 10 min
50 Remove & clean mold 042 Parts washer 15 min
60 Break off rough edges 051 Plastics finishing 10 min

Process Analysis
 Process flowcharts
 Symbolic representation of processes
 Incorporate
 nonproductive activities (inspection,
transportation, delay, storage)
 productive activities (operations)

Process Flowchart
Symbols
Operations
Inspection
Transportation
Delay
Storage
Date: 9-30-02 Location: Graves Mountain
Analyst: TLR Process: Apple Sauce
Distance
Operation
Transport
Description
Storage
Inspect
(feet)
(min)
Time
Delay
Step
of
process
1 Unload apples from truck 20
Process 2
3
Move to inspection station
Weigh, inspect, sort 30
100 ft
Flowchart 4
5
Move to storage
Wait until needed 360
50 ft
6 Move to peeler 20 ft
of Apple 7
8
Apples peeled and cored
Soak in water until needed
15
20
Processing 9
10
Place in conveyor
Move to mixing area
5
20 ft
11 Weigh, inspect, sort 30
Page 1 0f 3 Total 480 190 ft

Customer Waiter Salad Chef Dinner Chef
N
Is order
Place order complete?
Y
Give soup or salad order to chef Prepare soup or
salad order
Give dinner order to chef Prepare dinner
order
Drink Get drinks for customer
Eat salad or Deliver salad or soup order to customer Give order

soup to waiter
Eat dinner Deliver dinner to customer Give order

to waiter
Receives check Deliver check to customer
Gives payment
to waiter Receive payment for meal
Credit
Cash or
Credit?
Collect change,
Cash
Bring change to customer
A Process
leave tip
Map of
Run credit card through
Fill in tip
Restaurant
Return credit slip to customer
amount
Service
Collect tip

Service
Blueprint
for an
Installment
Lending
Operation
Source: Lynn Shostack, “Service Positioning through Structural Change,” Journal of Marketing 51 (January 1987), p.
36. Reprinted with permission by the American Marketing Association

Process Innovation
Continuous improvement
refines the breakthrough
Breakthrough
Improvement
Total redesign of Continuous improvement activities

peak; time to reengineer process
a process for
breakthrough
improvements

From Function to Process
Manufacturing Product Development

Purchasing
Accounting
Sales Order Fulfillment
Supply Chain Management
Customer Service
Function Process

Process Innovation Strategic
Directives
Baseline Data
Customer Goals for Process Benchmark
Requirements Performance
Data
High - level Innovative

Process map Ideas Design
Principles
Detailed Model
Process Map Validation Key
Performance
Measures
Pilot Study
of New Design
Goals Full Scale

No Met? Yes Implementation

Principles for Redesigning
Processes
 Remove waste, simplify, and consolidate
similar activities
 Link processes to create value
 Let the swiftest and most capable enterprise
execute the process
 Flex process for any time, any place, any way
 Capture information digitally at the source and
propagate it through process

Principles for Redesigning
Processes (cont.)
 Provide visibility through fresher and richer
information about process status
 Fit process with sensors and feedback loops
that can prompt action
 Add analytic capabilities to process
 Connect, collect, and create knowledge around
process through all who touch it
 Personalize process with preferences and
habits of participants

Techniques for Generating
Innovative Ideas
 Vary the entry point to a problem

 in trying to untangle fishing lines, it’s best to start
from the fish, not the poles
 Draw analogies
 a previous solution to an old problem might work
 Change your perspective
 think like a customer
 bring in persons who have no knowledge of
process

Techniques for Generating
Innovative Ideas (cont.)
 Try inverse brainstorming
 what would increase cost
 what would displease the customer
 Chain forward as far as possible
 if I solve this problem, what is the next problem
 Use attribute brainstorming
 how would this process operate if. . .
 our workers were mobile and flexible
 there were no monetary constraints
 we had perfect knowledge

Technology Decisions
 Financial justification of technology

 Purchase cost
 Operating Costs
 Annual Savings
 Revenue Enhancement
 Replacement Analysis
 Risk and Uncertainty
 Piecemeal Analysis

Components of e-Manufacturing

A Technology Primer
Product Technology

 Computer-aided
Computer-aided  Creates and communicates designs
design
design (CAD)
(CAD) electronically

 Group
Group technology
technology  Classifies designs into families for easy
(GT)
(GT) retrieval and modification

 Computer-aided
Computer-aided  Tests functionality of CAD designs
engineering
engineering (CAE)
(CAE) electronically

 Collaborative
Collaborative  Facilitates electronic communication and
product
product commerce
commerce
(CPC) exchange of information among designers
(CPC) and suppliers

A Technology Primer (cont.)
Product Technology

 Product
Product data
data  Keeps track of design specs and revisions
management
management
(PDM) for the life of the product
(PDM)
  Integrates decisions of those involved in
 Product
Product life
life cycle
cycle
management
management product development, manufacturing, sales,
(PLC)
(PLC) customer service, recycling, and disposal
 Confines products “built” by customers who

 Product
Product definition
definition have selected among various options,
usually from a Web site

Process Technology

 Standard
Standard for
for  Set standards for communication among
exchange
exchange of different CAD vendors; translates CAD data
product
product model data into requirements for automated inspection
(STEP)
(STEP) and manufacture

 Computer-aided
Computer-aided  Electronic link between automated design
design
design and
and (CAD) and automated manufacture (CAM)
manufacture
manufacture
(CAD/CAM)
(CAD/CAM)  Generates process plans based on

 Computer
Computer aided
aided database of similar requirements
process
process (CAPP)
(CAPP)  Electronic procurement of items from e-

 E-procurement
E-procurement marketplaces, auctions, or company
websites

Manufacturing Technology

 Computer
Computer  Machines controlled by software code to perform a
numerically
numerically control
control variety of operations with the help of automated
(CNC)
(CNC) tool changers; also collects processing information
and quality data

 Flexible
Flexible  A collection of CNC machines connected by an
manufacturing
manufacturing automated material handling system to produce a
system
system (FMS)
(FMS) wide variety of parts
 Manipulators that can be programmed to perform

 Robots
Robots repetitive tasks; more consistent than workers but
less flexible

 Conveyors
Conveyors  Fixed-path material handling; moves items along a
belt or overhead chain; “reads” packages and
diverts them to different directions; can be very fast

Manufacturing Technology
 Automatic
Automatic guided
guided  A driverless truck that moves material along a
vehicle
vehicle (AGV)
(AGV) specified path; directed by wire or tape embedded
in floor or by radio frequencies; very flexible
 Automated  An automated warehouse—some 26 stores high—

Automated storage
storage
in which items are placed in a carousel-type
and
and retrieval
retrieval system
system
storage system and retrieved by fast-moving
(ASRS)
(ASRS)
stacker cranes; controlled by computer
 Continuous monitoring of automated equipment;
 Process
Process Control
Control makes real-time decisions on ongoing operation,
maintenance, and quality
 Computer-integrated  Automated manufacturing systems integrated
Computer-integrated
manufacturing
manufacturing (CIM)
(CIM) through computer technology; also called e-
manufacturing

Information Technology

 Business
Business – to –  Electronic transactions between businesses
Business
Business (B2B) usually over the Internet

 Business
Business – to –  Electronic transactions between businesses and
Customer
Customer (B2C)
(B2C) their customers usually over the Internet

 Internet
Internet  A global information system of computer networks
that facilitates communication and data transfer

 Intranet  Communication networks internal to an
Intranet
organization; can be password (i.e., firewall)
protected sites on the Internet
 Intranets connected to the Internet for shared

 Extranet
Extranet access with select suppliers, customers, and
trading partners


 Bar
Bar Codes
Codes  A series of vertical lines printed on most packages that
identifies item and other information when read by a
 scanner
 Radio
Radio Frequency
Frequency
Identification  An integrated circuit embedded in a tag that can send
Identification tags
tags
(RFID)
(RFID) and receive information; a twenty-first century bar code
with read/write capabilities
 A computer-to-computer exchange of business

 Electronic
Electronic data
data documents over a proprietary network; very expensive
interchange
interchange (EDI)
(EDI) and inflexible
 A programming language that enables computer – to -

 Extensive
Extensive markup
markup computer communication over the Internet by tagging
language
language (XML)
(XML) data before its is sent
 Software for managing basic requirements of an

 Enterprise
Enterprise enterprise, including sales & marketing, finance and
resource
resource planning
planning accounting, production & materials management, and
(ERP)
(ERP) human resources

 Software for managing flow of goods and information
 Supply
Supply chain
chain among a network of suppliers, manufacturers and
management
management (SCM)
(SCM) distributors
 Software for managing interactions with customers and
 Customer
Customer relationship
relationship
management
management (CRM)
(CRM) compiling and analyzing customer data
 An information system that helps managers make
 Decision
Decision support
support decisions includes a quantitative modeling component
systems
systems (DSS)
(DSS) and an interactive component for what-if analysis
 A computer system that uses an expert knowledge base
 Expert
Expert systems
systems (ES)
(ES) to diagnose or solve a problem
 A field of study that attempts to replicate elements of
 Artificial
Artificial intelligence
intelligence
(AI) human thought in computer processes; includes expert
(AI)
systems, genetic algorithms, neural networks, and fuzzy
logic

Capacity Decisions
 Capacity  Capacity utilization

 maximum  percent of available time spend
capability to working
produce  Capacity efficiency
 rated capacity  how well a machine or worker
is theoretical performs compared to a standard
 effective output level
capacity  Capacity load
includes
efficiency and
 standard hours of work assigned to a
utilization facility
 Capacity load percent
 ratio of load to capacity

Capacity Expansion Strategies

Capacity Decisions (cont.)
 Capacity increase depends on
 volume and certainty of anticipated demand
 strategic objectives
 costs of expansion and operation
 Best operating level
 % of capacity utilization that minimizes unit costs
 Capacity cushion
 % of capacity held in reserve for unexpected
occurrences

Economies of Scale
 it costs less per unit to produce high levels of

output
 fixed costs can be spread over a larger number of
units
 production or operating costs do not increase
linearly with output levels
 quantity discounts are available for material
purchases
 operating efficiency increases as workers gain
experience

Diseconomies of Scale
 Occur above a certain level of

output
 Diseconomies of Distribution
 Diseconomies of Bureaucracy
 Diseconomies of Confusion
 Diseconomies of Vulnerability

Best Operating Level for a Hotel

Diseconomies of Confusion

Copyright 2006 John Wiley & Sons, Inc.
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Copyright caused
2006 John Wiley by the use of these
& Sons, Inc. 6-51

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Chapter 6

Processes, Technology, and Capacity

Roberta Russell & Bernard W. Taylor, III

Copyright 2006 John Wiley & Sons, Inc. 6-2

Copyright 2006 John Wiley & Sons, Inc. 6-3

Copyright 2006 John Wiley & Sons, Inc. 6-4

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Vertical Joint Strategic Arms-Length

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No. of Infinite Many,

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Varied General- Special- Highly

Copyright 2006 John Wiley & Sons, Inc. 6-10

Efficiency, Highly efficient,

Machine shops, Automobiles,

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Total cost = fixed cost + total variable cost

Copyright 2006 John Wiley & Sons, Inc. 6-13

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Fixed cost = cf = $2,000

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Below 2,667, choose A

Copyright 2006 John Wiley & Sons, Inc. 6-17

Process $15,000 — Total cost of

Point of indifference = 2,667 Units

Copyright 2006 John Wiley & Sons, Inc. 6-18

 Set of documents that detail manufacturing

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Oper. No. Description Dept. Machine/Tools Time

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1 Unload apples from truck 20

Copyright 2006 John Wiley & Sons, Inc. 6-24

Eat salad or Deliver salad or soup order to customer Give order

Eat dinner Deliver dinner to customer Give order

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Copyright 2006 John Wiley & Sons, Inc. 6-26

Total redesign of Continuous improvement activities

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Manufacturing Product Development

Sales Order Fulfillment

Supply Chain Management

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High - level Innovative

Goals Full Scale

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 Vary the entry point to a problem

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 Financial justification of technology

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