1. Copyright 2006 John Wiley & Sons, Inc. Beni Asllani University of Tennessee at Chattanooga Processes, Technology, and Capacity Operations Management - 5 th Edition Chapter 6 Roberta Russell & Bernard W. Taylor, III

2. Copyright 2006 John Wiley & Sons, Inc.6-2 Lecture Outline   Process Planning   Process Analysis   Process Innovation   Technology Decisions

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

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

5. Copyright 2006 John Wiley & Sons, Inc.6-5 Make or Buy Decisions  Cost  Capacity  Quality  Speed  Reliability  Expertise

6. Copyright 2006 John Wiley & Sons, Inc.6-6 Sourcing Continuum 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 Arms-Length Relationship (short-term contract or single purchasing decision) Vertical Integration (100% ownership) Joint Venture (equity partner) Strategic Alliance (long-term supplier contract; collaborative relationship)

7. Copyright 2006 John Wiley & Sons, Inc.6-7 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

8. Copyright 2006 John Wiley & Sons, Inc.6-8 PROJECTBATCH Types of Processes Type of product Unique Made-to- order (customized) Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage (New York:McGraw-Hill, 2001), p. 210 Type of customer One-at-a- time Few individual customers MASS Made-to- stock (standardized ) Mass market CONT. Commodity Mass market Product demand InfrequentFluctuatesStableVery stable

9. Copyright 2006 John Wiley & Sons, Inc.6-9 PROJECTBATCH Types of Processes (cont.) Demand volume Very low Low to medium Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage (New York:McGraw-Hill, 2001), p. 210 No. of different products Infinite variety Many, varied MASS High Few CONT. Very high Very few Production system Long-term project Discrete, job shops Repetitive, assembly lines Continuous, process industries

10. Copyright 2006 John Wiley & Sons, Inc.6-10 PROJECTBATCH Types of Processes (cont.) Equipment Varied General- purpose Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage (New York:McGraw-Hill, 2001), p. 210 Primary type of work Specialized contracts Fabrication MASS Special- purpose Assembly CONT. Highly automated Mixing, treating, refining Worker skills Experts, crafts- persons Wide range of skills Limited range of skills Equipment monitors

11. Copyright 2006 John Wiley & Sons, Inc.6-11 PROJECTBATCH Types of Processes (cont.) Advantages Custom work, latest technology Flexibility, quality Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage (New York:McGraw-Hill, 2001), p. 210 Dis- advantages Non-repetitive, small customer base, expensive Costly, slow, difficult to manage MASS Efficiency, speed, low cost Capital investment; lack of responsiveness CONT. Highly efficient, large capacity, ease of control Difficult to change, far-reaching errors, limited variety Examples Construction, shipbuilding, spacecraft Machine shops, print shops, bakeries, education Automobiles, televisions, computers, fast food Paint, chemicals, foodstuffs

12. Copyright 2006 John Wiley & Sons, Inc.6-12   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 Process Selection with Break-Even Analysis

13. Copyright 2006 John Wiley & Sons, Inc.6-13 Process Selection with Break-Even Analysis (cont.) Total cost = fixed cost + total variable cost TC = c f + vc v Total revenue = volume x price TR = vp Profit = total revenue - total cost Z = TR – TC = vp - ( c f + vc v )

14. Copyright 2006 John Wiley & Sons, Inc.6-14 Process Selection with Break-Even Analysis (cont.) Solving for Break-Even Volume TR= TC vp = c f + vc v vp - vc v = c f v ( p - c v )= c f v = c f p - c v

15. Copyright 2006 John Wiley & Sons, Inc.6-15 Break-Even Analysis: Example from book Fixed cost= c f = $2,000 Variable cost= c v = $5 per raft Price= p = $10 per raft Break-even point is v = = = 400 rafts c f p - c v 2000 10 - 5

16. Copyright 2006 John Wiley & Sons, Inc.6-16 Break-Even Analysis: Graph Total cost line Total revenue line Break-even point 400Units $3,000 — $2,000 — $1,000 —

17. Copyright 2006 John Wiley & Sons, Inc.6-17 Break Even Analysis Example  You want to start your own business while in college. Your business plan involves writing term papers for students at other schools. As such, you must invest in procurement of a domain name and a web hosting service contract. A one-year contract for both the domain name and hosting service costs $400. You plan to charge $25 for each term paper you write. You estimate that research for each paper costs $5. What volume of demand over the next year do you need in order to break even?

18. Copyright 2006 John Wiley & Sons, Inc.6-18 Process Selection Below 2,667, choose A Above 2,667, choose B $2,000 + $5 v = $10,000 + $2 v $3 v = $8,000 v = 2,667 rafts Process AProcess B

19. Copyright 2006 John Wiley & Sons, Inc.6-19 Process Selection: Graph Example 4.2 |||| 1000200030004000Units $20,000 — $15,000 — $10,000 — $5,000 — Total cost of process A Total cost of process B Choose process A Choose process B Point of indifference = 2,667 Units

20. Copyright 2006 John Wiley & Sons, Inc.6-20 Process Selection: Point of Indifference  Your roommate seems interested in your business plan and suggests she could help you out. You have also thought about farming everything out and simply being the middle man. Now you must choose between these 3 plans. You still plan to charge $25 for each term paper delivered. If you bring your roommate in as a partner, the fixed cost drops to $200, but the variable costs increases to $10. If you farm everything out, you have no fixed cost and the variable cost is $20. What are the points of indifference?

21. Copyright 2006 John Wiley & Sons, Inc.6-21 Process Plans   Set of documents that detail manufacturing and service delivery specifications assembly charts operations sheets quality-control check-sheets

22. Copyright 2006 John Wiley & Sons, Inc.6-22 Process Analysis   Process flowcharts Symbolic representation of processes Incorporate nonproductive activities (inspection, transportation, delay, storage) productive activities (operations)

23. Copyright 2006 John Wiley & Sons, Inc.6-23 Common Flowchart Symbols  Terminal State (Start / End)  Process  Decision  Data

24. Copyright 2006 John Wiley & Sons, Inc.6-24 Place order Drink Eat salad or soup Eat dinner Receives check Gives payment to waiter Collect change, leave tip Fill in tip amount Give order to waiter Prepare dinner order Prepare soup or salad order Give order to waiter Is order complete? Give soup or salad order to chef Give dinner order to chef Get drinks for customer Deliver salad or soup order to customer Deliver dinner to customer Deliver check to customer Receive payment for meal Cash or Credit? Bring change to customer Run credit card through Return credit slip to customer Collect tip Y N Credit Cash CustomerWaiter Salad Chef Dinner Chef A Process Map of Restaurant Service

25. Copyright 2006 John Wiley & Sons, Inc.6-25 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

26. Copyright 2006 John Wiley & Sons, Inc.6-26 Process Innovation Breakthrough Improvement Continuous improvement refines the breakthrough Continuous improvement activities peak; time to reengineer process Total redesign of a process for breakthrough improvements

27. Copyright 2006 John Wiley & Sons, Inc.6-27 From Function to Process Manufacturing Accounting Sales Purchasing Product Development Order Fulfillment Supply Chain Management Customer Service Function Process

28. Copyright 2006 John Wiley & Sons, Inc.6-28 Strategic Directives Goals for Process Performance Pilot Study of New Design Detailed Process Map High - level Process map Goals Met? Goals Met? Innovative Ideas Innovative Ideas Design Principles Design Principles Model Validation Model Validation Customer Requirements Customer Requirements Key Performance Measures Key Performance Measures Full Scale Implementation Baseline Data Benchmark Data Benchmark Data NoYes Process Innovation

29. Copyright 2006 John Wiley & Sons, Inc.6-29 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

30. Copyright 2006 John Wiley & Sons, Inc.6-30 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

31. Copyright 2006 John Wiley & Sons, Inc.6-31 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

32. Copyright 2006 John Wiley & Sons, Inc.6-32 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

33. Copyright 2006 John Wiley & Sons, Inc.6-33 Technology Decisions   Financial justification of technology Purchase cost Operating Costs Annual Savings Revenue Enhancement Replacement Analysis Risk and Uncertainty Piecemeal Analysis

34. Copyright 2006 John Wiley & Sons, Inc.6-34 Components of e-Manufacturing

35. Copyright 2006 John Wiley & Sons, Inc.6-35 A Technology Primer   Computer-aided design (CAD)   Group technology (GT)   Computer-aided engineering (CAE)   Collaborative product commerce (CPC)   Computer-aided design (CAD)   Group technology (GT)   Computer-aided engineering (CAE)   Collaborative product commerce (CPC)  Creates and communicates designs electronically  Classifies designs into families for easy retrieval and modification  Tests functionality of CAD designs electronically  Facilitates electronic communication and exchange of information among designers and suppliers Product Technology

36. Copyright 2006 John Wiley & Sons, Inc.6-36   Product data management (PDM)   Product life cycle management (PLC)   Product definition   Product data management (PDM)   Product life cycle management (PLC)   Product definition  Keeps track of design specs and revisions for the life of the product  Integrates decisions of those involved in product development, manufacturing, sales, customer service, recycling, and disposal  Confines products “built” by customers who have selected among various options, usually from a Web site Product Technology A Technology Primer (cont.)

37. Copyright 2006 John Wiley & Sons, Inc.6-37   Standard for exchange of product model data (STEP)   Computer-aided design and manufacture (CAD/CAM)   Computer aided process (CAPP)   E-procurement   Standard for exchange of product model data (STEP)   Computer-aided design and manufacture (CAD/CAM)   Computer aided process (CAPP)   E-procurement  Set standards for communication among different CAD vendors; translates CAD data into requirements for automated inspection and manufacture  Electronic link between automated design (CAD) and automated manufacture (CAM)  Generates process plans based on database of similar requirements  Electronic procurement of items from e- marketplaces, auctions, or company websites Process Technology A Technology Primer (cont.)

38. Copyright 2006 John Wiley & Sons, Inc.6-38   Computer numerically control (CNC)   Flexible manufacturing system (FMS)   Robots   Conveyors   Computer numerically control (CNC)   Flexible manufacturing system (FMS)   Robots   Conveyors  Machines controlled by software code to perform a variety of operations with the help of automated tool changers; also collects processing information and quality data  A collection of CNC machines connected by an automated material handling system to produce a wide variety of parts  Manipulators that can be programmed to perform repetitive tasks; more consistent than workers but less flexible  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 A Technology Primer (cont.)

39. Copyright 2006 John Wiley & Sons, Inc.6-39   Automatic guided vehicle (AGV)   Automated storage and retrieval system (ASRS)   Process Control   Computer-integrated manufacturing (CIM)   Automatic guided vehicle (AGV)   Automated storage and retrieval system (ASRS)   Process Control   Computer-integrated manufacturing (CIM)  A driverless truck that moves material along a specified path; directed by wire or tape embedded in floor or by radio frequencies; very flexible  An automated warehouse—some 26 stores high— in which items are placed in a carousel-type storage system and retrieved by fast-moving stacker cranes; controlled by computer  Continuous monitoring of automated equipment; makes real-time decisions on ongoing operation, maintenance, and quality  Automated manufacturing systems integrated through computer technology; also called e- manufacturing Manufacturing Technology A Technology Primer (cont.)

40. Copyright 2006 John Wiley & Sons, Inc.6-40   Business – to – Business (B2B)   Business – to – Customer (B2C)   Internet   Intranet   Extranet   Business – to – Business (B2B)   Business – to – Customer (B2C)   Internet   Intranet   Extranet  Electronic transactions between businesses usually over the Internet  Electronic transactions between businesses and their customers usually over the Internet  A global information system of computer networks that facilitates communication and data transfer  Communication networks internal to an organization; can be password (i.e., firewall) protected sites on the Internet  Intranets connected to the Internet for shared access with select suppliers, customers, and trading partners Information Technology A Technology Primer (cont.)

41. Copyright 2006 John Wiley & Sons, Inc.6-41   Bar Codes   Radio Frequency Identification tags (RFID)   Electronic data interchange (EDI)   Extensive markup language (XML)   Enterprise resource planning (ERP)   Bar Codes   Radio Frequency Identification tags (RFID)   Electronic data interchange (EDI)   Extensive markup language (XML)   Enterprise resource planning (ERP)  A series of vertical lines printed on most packages that identifies item and other information when read by a scanner  An integrated circuit embedded in a tag that can send and receive information; a twenty-first century bar code with read/write capabilities  A computer-to-computer exchange of business documents over a proprietary network; very expensive and inflexible  A programming language that enables computer – to - computer communication over the Internet by tagging data before its is sent  Software for managing basic requirements of an enterprise, including sales & marketing, finance and accounting, production & materials management, and human resources Information Technology A Technology Primer (cont.)

42. Copyright 2006 John Wiley & Sons, Inc.6-42   Supply chain management (SCM)   Customer relationship management (CRM)   Decision support systems (DSS)   Expert systems (ES)   Artificial intelligence (AI)   Supply chain management (SCM)   Customer relationship management (CRM)   Decision support systems (DSS)   Expert systems (ES)   Artificial intelligence (AI)  Software for managing flow of goods and information among a network of suppliers, manufacturers and distributors  Software for managing interactions with customers and compiling and analyzing customer data  An information system that helps managers make decisions includes a quantitative modeling component and an interactive component for what-if analysis  A computer system that uses an expert knowledge base to diagnose or solve a problem  A field of study that attempts to replicate elements of human thought in computer processes; includes expert systems, genetic algorithms, neural networks, and fuzzy logic Information Technology A Technology Primer (cont.)