1. © 1997 Prentice-Hall, Inc. 5 - 1 Principles of Operations Management Process & Capacity Design Chapter 5

2. © 1997 Prentice-Hall, Inc. 5 - 2 n Describe the types of process strategies n Compare technological alternatives n State how to select a process strategy n Define capacity n Explain how to manage existing capacity Learning Objectives

3. © 1997 Prentice-Hall, Inc. 5 - 3 McDonalds over 95 billion served Thinking Challenge Consider McDonalds restaurants. Fact #1: Franchisees of McDonalds have to go to Hamburger U. They protest, But, Ive been in the restaurant business 20 years – I know the restaurant business! Yes, but you dont know OUR business. © 1984-1994 T/Maker Co.

4. © 1997 Prentice-Hall, Inc. 5 - 4 Thinking Challenge Fact #2: A typical McDonalds restaurant is run by unskilled teenagers, whose mothers cant even get them to make their beds in the morning. What do these facts & your own experiences suggest about McDonalds operations? McDonalds over 95 billion served © 1984-1994 T/Maker Co. AloneGroupClass

5. © 1997 Prentice-Hall, Inc. 5 - 5 Process Decisions n Involve determining how to produce a product or provide a service n Objective l Meet or exceed customer requirements l Meet cost & managerial goals n Has long-run effects l Product & volume flexibility l Costs & quality

6. © 1997 Prentice-Hall, Inc. 5 - 6 Types of Process Strategies Continuum Repetitive- Focused Product- Focused Process- Focused n The strategies are often classified as:

7. © 1997 Prentice-Hall, Inc. 5 - 7 Process-Focused Strategy n Facilities are organized by process n Similar processes are together l Example: All drill presses are together n Low volume, high variety products n Jumbled flow n Other names l Intermittent process l Job shop Oper. Product A Product B 112233

8. © 1997 Prentice-Hall, Inc. 5 - 8 Process-Focused Strategy Pros & Cons n Advantages l Greater product flexibility l More general purpose equipment l Lower initial capital investment n Disadvantages l More highly trained personnel l More difficult production planning & control l Low equipment utilization (5% to 25%)

9. © 1997 Prentice-Hall, Inc. 5 - 9 Product-Focused Strategy n Facilities are organized by product n High volume, low variety products n Other names l Line flow production l Continuous production n Where found l Discrete unit manufacturing l Continuous process manufacturing Oper. Products A & B 112233

10. © 1997 Prentice-Hall, Inc. 5 - 10 Product-Focused Strategy Pros & Cons n Advantages l Lower variable cost per unit l Lower but more specialized labor skills l Easier production planning & control l Higher equipment utilization (70% to 90%) n Disadvantages l Lower product flexibility l More specialized equipment l Usually higher capital investment

11. © 1997 Prentice-Hall, Inc. 5 - 11 Repetitive-Focused Strategy n Facilities often organized by assembly lines n Characterized by modules l Parts & assemblies made previously n Modules combined for many output options n Other names l Assembly line l Production line

12. © 1997 Prentice-Hall, Inc. 5 - 12 Thinking Challenge: Compare & Contrast AloneGroupClass

13. © 1997 Prentice-Hall, Inc. 5 - 13 Technology Alternatives n General purpose machines n Numerical control machines n Process control n Robots n Automated guided vehicles (AGV) n Flexible manufacturing systems (FMS) n Computer-integrated mfg. (CIM)

14. © 1997 Prentice-Hall, Inc. 5 - 14 General Purpose Machines (GPM) n Machines capable of performing many different operations n Manually operated n Found in process- focused facilities n Low volume production Manual Lathe Router © 1995 Corel Corp.

15. © 1997 Prentice-Hall, Inc. 5 - 15 n Used in computer- aided mfg. (CAM) l Using computers to program, direct, & control machines n Numerical control (NC) machine l Repeat operations by reading punch paper or magnetic tape n Computer numerical control (CNC) machine l Programmable by operator at machine l Has own memory n Direct numerical control (DNC) machine l Has own memory l Connected to computer running many machines Numerical Control (NC)

16. © 1997 Prentice-Hall, Inc. 5 - 16 Process Control n Example: Measure thickness of wallboard n Found in product & repetitive-focused facilities Actual avg. Planned avg. Process limits © 1995 Corel Corp. n Use of information technology to control physical process

17. © 1997 Prentice-Hall, Inc. 5 - 17 RobotsRobots n Machines that hold, move, or grasp items n Perform monotonous or dangerous tasks n Used when speed, accuracy, or strength are needed © 1984-1994 T/Maker Co.

18. © 1997 Prentice-Hall, Inc. 5 - 18 Automated Guided Vehicles (AGV) n Material handling machines n Used to move parts & equipment in manufacturing n May be used to deliver mail & meals in service facilities © 1984-1994 T/Maker Co.

19. © 1997 Prentice-Hall, Inc. 5 - 19 Flexible Manufacturing Systems (FMS) n Using automated machines (DNC) & materials handling equipment together n Often connected to centralized computer n Also called automated work cell

20. © 1997 Prentice-Hall, Inc. 5 - 20 Computer-Integrated Manufacture (CIM) n Mfg. system that combines CAM with engineering (CAD), & production & inventory control n Computer-aided design (CAD) creates code to run DNC machines CAM

21. © 1997 Prentice-Hall, Inc. 5 - 21 Production Process & Technology Alternatives Flexible Mfg. System Low High General Purpose, NC, CNC CIM # Different Products or Parts Volume of Products or Parts Low High DedicatedAutomation

22. © 1997 Prentice-Hall, Inc. 5 - 22 Factors Affecting Process Alternatives n Production flexibility l Product volume l Product variety n Technology n Cost n Human resources n Quality n Reliability These factors reduce the number of alternatives! © 1984-1994 T/Maker Co.

23. © 1997 Prentice-Hall, Inc. 5 - 23 Process Investment Evaluation n Long-term factors l Fit with company strategic plan l Competitive advantage l Product life cycle l Operating factors (e.g., scrap, training) n Financial return l Break-even analysis l Cash flow analysis (IRR, NPV)

24. © 1997 Prentice-Hall, Inc. 5 - 24 Break-Even Analysis n Technique for evaluating process & equipment alternatives n Objective: Find the point ($ or units) at which total cost equals total revenue n Assumptions l Revenue & costs are related linearly to volume l All information is known with certainty l No time value of money

25. © 1997 Prentice-Hall, Inc. 5 - 25 Facility Planning n How much long-range capacity is needed n When more capacity is needed n Where facilities should be located (location) n How facilities should be arranged (layout) Facility planning answers:

26. © 1997 Prentice-Hall, Inc. 5 - 26 CapacityCapacity n Maximum output of a system in a given period (general definition) l May be units, hours, dollars, sq. ft. etc. l Example: Tons of steel per month n Effective capacity: Maximum output given standards, product mix, etc. n Rated capacity: Maximum usable output given utilization & efficiency l RC = (Capacity)(Utilization)(Efficiency)

27. © 1997 Prentice-Hall, Inc. 5 - 27 Capacity Definition Thinking Challenge n How would you define capacity for the following firms (e.g., steel mill, tons of steel per day): l Beer brewery l Auto plant l Restaurant l Warehouse l Grocery store AloneGroupClass

28. © 1997 Prentice-Hall, Inc. 5 - 28 UtilizationUtilization n Measure of planned or actual capacity usage of a facility, work center, or machine

29. © 1997 Prentice-Hall, Inc. 5 - 29 EfficiencyEfficiency n Measure of how well a facility or machine is performing when used

30. © 1997 Prentice-Hall, Inc. 5 - 30 Utilization Example Youre owner of a small florist shop. Normally, your shop is open 8 hr./day Monday to Friday, & 4 hr. on Saturday. During the summer, youre closed on Monday & Saturday. What is your capacity, expected capacity, & utilization during the summer? © 1995 Corel Corp.

31. © 1997 Prentice-Hall, Inc. 5 - 31 Utilization Thinking Challenge AloneGroupClass © 1984-1994 T/Maker Co. Youre operations manager of a paper company. Given the expensive machinery, full capacity is 3 shifts, 7 days per week. Since demand is slow, youve scheduled 3 shifts, 6 days per week. What is your capacity, expected capacity, & utilization? © 1995 Corel Corp.

32. © 1997 Prentice-Hall, Inc. 5 - 32 Rated Capacity Thinking Challenge AloneGroupClass © 1984-1994 T/Maker Co. The standard rate of output of a paper mfg. machine is 1800 ft./min. Records show that the actual average rate is 1710 ft./min. Present utilization is 85.7%. The plant was designed to make 92,000 tons of paper per year. What is the rated capacity? © 1995 Corel Corp.

33. © 1997 Prentice-Hall, Inc. 5 - 33 Capacity Planning Process

34. © 1997 Prentice-Hall, Inc. 5 - 34 n Vary staffing n Change equipment & processes n Change methods n Redesign the product for faster processing Managing Existing Capacity Capacity Management n Vary prices n Vary promotion n Change lead times (e.g., backorders) n Offer complementary products Demand Management

35. © 1997 Prentice-Hall, Inc. 5 - 35 n Described the types of process strategies n Compared technological alternatives n Stated how to select a process strategy n Defined capacity n Explained how to manage existing capacity ConclusionConclusion