McGraw-Hill/Irwin

Capacity Planning Capacity: the amount of output that can be created by, a process, with a given level of resources over a given time period

Economies & Diseconomies of scale Economies of Scale: If the output rate is less than the optimal level, increasing output rate results in decreasing average unit costs Diseconomies of Scale: If the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs Cost per Unit Volume (Number of Units) Diseconomies of Scale Economies of Scale Figure 5-1

Reasons for Economies of Scale Allocation of fixed costs Equipment and construction costs Lower costs for purchases Learning curves

Product-Process Matrix Project High Variety Flexibility Cost Low Mass Customization Job Shop Batch Repetitive Process Cellular Manufacturing Continuous Process Low Volume High Figure 5-2 5–5

Mass customization Mass customization: mass production + customization Real world example: Dell http://www.mymms.com/default.aspx

Cellular manufacturing Cellular manufacturing: production of products with similar process characteristics on small assembly lines called cells

Activity Identify a product : Project Job Shop Batch Repetitive Continuous

Process Structure and Market Orientation Engineer to Order (ETO): unique, customized products Example: house building, specialized equipment Make to Order (MTO): similar design, customized during production Example: Meal at an elegant restaurant, haircut

Process Structure and Market Orientation Assemble to Order (ATO): produced from standard components and modules Example: Dell, subway sandwiches Make to Stock (MTS): goods made and held in inventory in advance of customer orders Example: Groceries, bookstore

Service Process Matrix Low High Service Factory Service Shop Labor Customization/Customer Interaction Low High Mass Service Professional Service Intensity Figure 5-3 5–11

Service Blueprinting Physical evidence: tangibles the customers see or collect from the organization Customer actions: all actions done by customers during service delivery Front office: employee actions in the face-to- face encounter Back office: behind the scenes activities Support processes: activities necessary for the service, done by employees without direct customer contact 5–12

Service Blueprinting Figure 5-4 5–13

Operations Layout Product layout: resources arranged by regularly occurring sequence of activities Process layout: groups together similar resources or functions they perform Fixed layout: product cannot be moved during production Cellular layout: group technology. Product layout inside the group 5–14

A Product Layout In Out

Process Layout

Advantages of Product Layout High rate of output Low unit cost Labor specialization High utilization of labor and equipment Established routing and scheduling

Disadvantages of Product Layout Creates dull, repetitive jobs Fairly inflexible to changes in volume Highly susceptible to shutdowns Needs preventive maintenance

Advantages of Process Layouts Can handle a variety of processing requirements Not particularly vulnerable to equipment failures

Disadvantages of Process Layouts In-process inventory costs can be high Challenging routing and scheduling Equipment utilization rates are low

Fixed-Position Layouts Typical of projects in which product produced is too fragile, bulky, or heavy to move Equipment, workers, materials, other resources brought to the site Low equipment utilization Highly skilled labor Typically low fixed cost Often high variable costs

Cellular Layouts Identify families of parts with similar flow paths Group machines into cells based on part families Arrange cells so material movement is minimized Locate large shared machines at point of use

Parts Families A family of similar parts A family of related grocery items

Line Balancing in Product Layouts Used to assign individual tasks to work areas for a desired output rate Determine precedence relationships Calculate Takt time Determine minimum number of work stations = Total of all task times/takt time Determine efficiency = [sum of all task times/(actual work stations X takt time)] X 100 5–24

Line Balancing A B C D E F G Task Predecessors Time (minutes) A Shape dough None 2 B Add pizza sauce 1 C Add cheese D Add sausage 0.75 E Add pepperoni F Package pizza D, E 1.5 G Label package 0.5 Total Time: 8.75 A B C D E F G 5–25

Line balancing Takt time: maximum allowable cycle time at each work station. Takt time= available production time per day/output needed per day Example: demand =200 working 8 hours per day Takt time = 480 mins/ 200 =2.4 minutes/ station or pizza 5–26

Line balancing 2) Theoretical minimum number of station= total of task time/ takt time N= (2+1+2+.75+1+1.5+.5)/2.4 mins = 3.7 = 4 stations Note: actual stations needed is 5, why? 3) Efficiency=[(total task time/(number of actual work station)(takt time)] * 100 [(2+1+2+.75+1+1.5+.5)/(5 stations)(2.4)]*100 =73% 5–27

Break Even Analysis Figure 5-4 5–28

Total Revenue = Total Cost Break Even Point A firm has variable costs of per unit of $3 and annual fixed costs of $30,000. What is the break-even point if the sales prices is 8$ per unit Total Revenue = Total Cost TR = $8 * volume and TC = $30,000 + $3 * volume $8 * volume = $30,000 + $3 * volume $5 * volume = $30,000 volume = 6,000 units per year 5–29

Chapter 5 homework problems Do problems 2 on page 149 Do problems below The owner of Old-fashioned berry pies is contemplating adding a new line of pies, which requires leasing cost of $6,000 per month. Variable cost would be $2.0 and retail price would be $7.0. ( refer to next page for problems)

Chapter 5 homework problems 1) How many pies should be sold to break even? 2) What would the profit be if 1,000 pies are sold? 3) How many pies should be sold to realize a profit of $4,000? 4) If 2,000 can be sold, and a profit target is $5,000, what price should be charged ?