Copyright 2011 John Wiley & Sons, Inc. Chapter 5 Operations Management 5-1

Lecture Outline 5-2 What is Operations Management? Product Design Process Design Facility Layout Line Balancing in Product Layouts Process Automation Copyright 2011 John Wiley & Sons, Inc.

What is Operations Management? 5-3 Operations management (OM) is the business function responsible for producing a company’s goods and services in an efficient and cost- effective way Transformation Role –OM converts inputs into finished goods and services Copyright 2011 John Wiley & Sons, Inc.

5-4 Copyright 2011 John Wiley & Sons, Inc.

OM Decisions Product Design –designing unique product features Process Design –creating the production process Quality Management –establishing and implementing quality standards 5-5 Copyright 2011 John Wiley & Sons, Inc.

OM Decisions Continued Inventory Management –amounts of inventory to carry and when to order Facility Layout –physical layout of the production facility Facility Location –best location for facilities Scheduling –schedules for workers, machines, and facilities 5-6 Copyright 2011 John Wiley & Sons, Inc.

Manufacturing vs. Service Operations Manufacturing Operations –physical goods that can be stored –most customers have no direct contact with the operation Service Operations –intangible products that cannot be produced ahead of time –customer present during creation of the service 5-7 Copyright 2011 John Wiley & Sons, Inc.

Evolution of Operations 5-8 Copyright 2011 John Wiley & Sons, Inc. Operations has evolved from a strictly production function to having a strategic organizational role.

Impact on the Organization Operations must work with other business functions such as: Marketing –help operations understand what customers want –must understand operations’ capabilities Sourcing –help operations understand material availability –must understand operational requirements 5-9 Copyright 2011 John Wiley & Sons, Inc.

Impact on SCM Each company depends on other members of its supply chain Potential problems: –upstream delays or delivery of poor quality materials can delay production –sales suffer from downstream delays or products damaged in transport –poorly managed operations pass excess costs to other members of the supply chain 5-10 Copyright 2011 John Wiley & Sons, Inc.

What is Product Design? Product design is the process of specifying the exact features and characteristics of a company’s product Product characteristics are translated into measureable dimensions the production process can use to produce the product 5-11 Copyright 2011 John Wiley & Sons, Inc.

Designing Services Service design requires the design of the entire service concept Three elements to design: –physical element of the service –psychological benefits –sensual elements 5-12 Copyright 2011 John Wiley & Sons, Inc.

Product Design Process 1.Idea Development –marketing, competitors, early supplier involvement, reverse engineering 2.Product Screening –viability of the product 3.Preliminary Design and Testing –performance specifications translated into technical specifications 4.Final Design –specifications translated into production instructions 5-13 Copyright 2011 John Wiley & Sons, Inc.

Break-Even Analysis Break-even analysis can evaluate the success of a new product at the product screening stage Break-Even Point –quantity that need to be sold to cover costs –occurs when total cost = revenue 5-14 Copyright 2011 John Wiley & Sons, Inc.

Break-Even Analysis Continued Total Cost = Fixed Costs + Variable Costs Total Cost = F + V C Q where: F = fixed cost V C = variable cost per unit Q = # of units sold Revenue = S P Q where: S P = selling price per unit 5-15 Copyright 2011 John Wiley & Sons, Inc.

Set Total Cost = Total Revenue F + V C Q = S P Q Solve for Q: Q BE = where Q BE is the break-even quantity F S P - V C Break-Even Analysis Continued 5-16 Copyright 2011 John Wiley & Sons, Inc.

5-17 Copyright 2011 John Wiley & Sons, Inc.

Break-Even Example 5-18 Copyright 2011 John Wiley & Sons, Inc. Shu Chen plans a new line of children’s scarves. She estimates a variable cost of $25 per scarf and a fixed cost per year of $15,000. If the selling price is $30, how many scarves must she sell to break even? If Shu sells 4,000 scarves at the $30 price, what will be the contribution to profit?

Break-Even Example Q BE 5-19 Copyright 2011 John Wiley & Sons, Inc. Break-Even Quantity: Q BE = Q BE == 3,000 scarves F S P - V C $15,000 $30 - $25

Break-Even Example Profit 5-20 Copyright 2011 John Wiley & Sons, Inc. Profit = Total Revenue – Total Cost = (S P ) Q – [F + (V C ) Q] = $30 (4,000) – [$15,000 + $25 (4000)] = $5,000

Factors Impacting Product Design Decisions Design for Manufacture (DFM) –design simplification and standardization Product Life Cycle –introduction, growth, maturity, decline Concurrent Engineering –all functions work together simultaneously Remanufacturing –components of old products used in new ones 5-21 Copyright 2011 John Wiley & Sons, Inc.

What is Process Design? Process design involves developing a production process that can create the exact product that has been designed Two categories of Processes: –Intermittent –Repetitive 5-22 Copyright 2011 John Wiley & Sons, Inc.

Intermittent Processes Characteristics –Large variety of products –Products with different processing requirements –Low volume –Resources are grouped by function –Labor intensive 5-23 Copyright 2011 John Wiley & Sons, Inc.

Intermittent Processes Continued Characteristics Continued: –Highly skilled workers –Workers perform variety of tasks –General purpose equipment –Flexible –Tend to produce products in early stages of life cycle 5-24 Copyright 2011 John Wiley & Sons, Inc.

Repetitive Processes Characteristics: –One (or a few) standardized products –High volume –Resources organized in a line flow –Tend to produce products in later stages of life cycle –More capital-intensive rather than labor-intensive 5-25 Copyright 2011 John Wiley & Sons, Inc.

Continuum of Process Types 5-26 Copyright 2011 John Wiley & Sons, Inc.

Continuum of Process Types Project Processes –unique products made to customer specifications Batch Processes –small quantities produced in batches Line Processes –large volume of standardized product for mass production Continuous Processes –very high volume of fully standardized product 5-27 Copyright 2011 John Wiley & Sons, Inc.

Rapid Manufacturing Rapid Manufacturing uses technology to make products to order when needed, exactly where they are needed Relies on: –Three-dimensional (3D) printing technologies –Additive layer manufacturing (ALM) 5-28 Copyright 2011 John Wiley & Sons, Inc.

Facility Layout Facility layout is the physical arrangement of all resources within a facility Poor facility layouts are one of the most significant contributors to inefficiency and increased production cost 5-29 Copyright 2011 John Wiley & Sons, Inc.

Facility Layout Types Fixed Position Layout Process Layout Product Layout Cellular Layout 5-30 Copyright 2011 John Wiley & Sons, Inc.

Fixed Position Layout –used when a product cannot be moved during production –all resources come together at the product’s location –challenge to schedule the timing and sequencing of different tasks 5-31 Copyright 2011 John Wiley & Sons, Inc.

Process Layout –intermittent processes –resources grouped by process –products take different routes through the operation –design so cost of moving materials is minimized 5-32 Copyright 2011 John Wiley & Sons, Inc.

Process Layout Continued 5-33 Copyright 2011 John Wiley & Sons, Inc.

Product Layout –repetitive processes –resources arranged in sequence –every product is almost exactly the same –processing times are minimized 5-34 Copyright 2011 John Wiley & Sons, Inc.

Product Layout Continued 5-35 Copyright 2011 John Wiley & Sons, Inc.

Cellular Layout –attempt to combine efficiency of product layouts and flexibility of process layouts –items grouped into a product family according to processing requirements –workstations arranged in small assembly lines called cells –each cell is dedicated to a product family 5-36 Copyright 2011 John Wiley & Sons, Inc.

Designing Product Layouts Product Layout Objective –determine the sequence of tasks to be performed by each workstation Consider –order of tasks –time required to perform each task –speed of the production process Process is called Line Balancing 5-37 Copyright 2011 John Wiley & Sons, Inc.

Line Balancing Steps 1.Identify Task Times and Precedence Relationships 2.Determine Cycle Time 3.Determine Theoretical Minimum Number of Workstations 4.Assign Tasks to Workstations 5.Compute Efficiency 5-38 Copyright 2011 John Wiley & Sons, Inc.

Task Times and Precedence Relationships 5-39 Copyright 2011 John Wiley & Sons, Inc.

Task Times and Precedence Relationships Continued 5-40 Copyright 2011 John Wiley & Sons, Inc.

Determine Cycle Time Cycle Time –amount of time allowed to complete work at each station Cycle Time = 5-41 Copyright 2011 John Wiley & Sons, Inc. available production time per day desired number of units per day

Determine Cycle Time Pizza Operation –runs 8 hours per day = 28,800 seconds –want to produce 300 pizzas per day Cycle Time = Cycle Time == 96 seconds 5-42 Copyright 2011 John Wiley & Sons, Inc. available production time per day desired number of units per day 28,800 seconds/day 300 pizzas/day

N = N = 2.55 stations = 3 stations Sum of Task Times Cycle Time Theoretical Minimum # Workstations (N) 5-43 Copyright 2011 John Wiley & Sons, Inc. 245 seconds 96 seconds per station

Assign Tasks to Workstations Make sure the sum of task times at any station does not exceed the cycle time There are rules that can be followed if there is a choice of tasks to assign to a station Longest Task Time Rule –select the task with the longest task time Number of Followers Rule –select the task with the most number of followers 5-44 Copyright 2011 John Wiley & Sons, Inc.

5-45 Copyright 2011 John Wiley & Sons, Inc.

Efficiency = = = 63.8% Sum of Task Times # Workstations x Cycle Time Compute Efficiency 5-46 Copyright 2011 John Wiley & Sons, Inc. 245 seconds 4 stations x 96 seconds/station

Process Automation Advantages: –repetition without worker fatigue –enables physically dangerous jobs –production consistency –enhances speed –provides greater accuracy –enables handling of jobs beyond human capabilities 5-47 Copyright 2011 John Wiley & Sons, Inc.

Process Automation Disadvantages: –initial cost can be very high –many tasks cannot be automated –faster automated processing speeds can result in bottlenecks when working in unison with human processing 5-48 Copyright 2011 John Wiley & Sons, Inc.

Automation in Services –provides consistency –requires fewer employees –can impact customer’s perception of service quality –needs to be tied to the target market 5-49 Copyright 2011 John Wiley & Sons, Inc.

Review 1.Operations Management (OM), or “operations,” is the business function responsible for producing a company’s goods and services, in an efficient and cost effective way. It is the function responsible for transforming a company’s inputs, obtained by the sourcing function, into the finished goods or services, which marketing sells to final customers. 2.The operations function performs the transformational role of the organization. It has evolved from being a strictly production function to having a strategic organizational role. 3.OM involves making many varied decisions. These include product and process design, quality management, inventory management, facility layout and location, and scheduling. Competitive bidding and negotiation are two different methods used to reach agreement and develop contracts with potential suppliers Copyright 2011 John Wiley & Sons, Inc.

Review Continued 4.Product design is the process of deciding on specific characteristics and features of products. Process design is developing the process needed to produce the product. 5.Layout planning is deciding on the best physical arrangement of centers of economic activity. There are four types of layouts: fixed position, process, product, cellular. 6.Line balancing is the process of designing product layouts. It involves assigning tasks to workstations considering their precedence relationships, cycle time, and task times Copyright 2011 John Wiley & Sons, Inc.

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