1. McGraw-Hill/Irwin

2. 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

3. 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

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

5. 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

6. Mass customization
Mass customization: mass production + customization Real world example: Dell

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

8. Activity Identify a product : Project Job Shop Batch Repetitive
Continuous

9. 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

10. 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

11. 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

12. 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
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13. Service Blueprinting
Figure 5-4
5–13

14. 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
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15. A Product Layout In
Out

16. Process Layout

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

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

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

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

21. 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

22. 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

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

24. 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
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25. 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
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26. 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
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27. Line balancing
2) Theoretical minimum number of station= total of task time/ takt time
N= ( )/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
[( )/(5 stations)(2.4)]*100 =73%
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28. Break Even Analysis
Figure 5-4
5–28

29. 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
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30. 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)

31. 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 ?