Question 11 pts
The two characteristics on which the product-process matrix is based are
demand stability and worker skills
demand volume and product standardization
product customization and process speed
product quality and process cost
Question 21 pts
Process innovation projects are chartered to do all of the following except
achieve rapid, dramatic improvements in process performance
continuously improve existing processes
achieve breakthrough improvements
totally redesign or reengineer a process from scratch
Question 31 pts
A firm’s process strategy defines all of the following except its
capital intensity
process flexibility
vertical integration
process selection
Question 41 pts
As process selection moves up the diagonal from project to continuous production
demand volume decreases
product variety decreases
capital intensity decreases
flexibility increases
Question 51 pts
If a firm can sell a product for $40 each, then what is the volume needed to break even if the
fixed cost of production is $125,000 and labor and material costs are $30 per item?
125,000 units
12,500 units
4,167 units
3,250 units
Question 61 pts
A company is evaluating which of two alternatives should be used to produce a product that
will sell for $25 per unit. The following cost information describes the two alternatives
Process A
Process B
Fixed Cost
$100,000
$200,000
Variable Cost per Unit
$15
$10
For what level of volume (output) would the firm prefer Process A to Process B?
for all volume levels greater than 10,000
for all volume levels less than 13,333.33
for all volume levels greater than 20,000
for all volume levels less than 20,000
Question 74 pts
Match the following products with the most likely way they are produced from the productprocess matrix.
Office paper
[ Choose ]
Mass production
Project
Continuous
production
Batch production
Croissants
[ Choose ]
Mass production
Project
Continuous
production
Batch production
Cars
[ Choose ]
Mass production
Project
Continuous
production
Batch production
Custom jewelry
[ Choose ]
Mass production
Project
Continuous
production
Batch production
Chapter 6
Processes and Technology
Russell and Taylor
Operations and Supply Chain Management,
9th Edition
Lecture Outline
•
•
•
•
Process Planning
Process Analysis
Process Innovation
Technology Decisions
6-2
Learning Objectives
• Evaluate strategic options in process planning, including
whether or not to outsource
• Differentiate among different types of production
processes
• Understand the effect of volume and standardization on
process selection
• Appreciate the difficulties in translating a design to a
process
• Use simple flowcharting tools to improve everyday
processes
• Investigate the use of technology in manufacturing and
service processes
6-3
Process Planning
• Process
• Group of related tasks with specific inputs & outputs
• Process design
• tasks to be done & how they are coordinated among
functions, people, & organizations
• Process strategy
• an organization’s overall approach for physically
producing goods and services
• Process planning
• converts designs into workable instructions for
manufacture or delivery
6-4
Process Strategy
• Vertical integration
• extent to which firm will produce inputs and control outputs
of each stage of production process
• 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
• Customer involvement
• role of customer in production process
6-5
Outsourcing
• Cost
• Is it cheaper to make or buy the item
• Capacity
• Does the company have the capacity
• Quality
• Easier to control quality in your own factory
• Speed
• Shipping time can reduce savings
• Reliability
• Quality and timing are reliability measures
• Expertise
• Protect proprietary information
6-6
Stop & Think
What is the difference between outsourcing
and offshoring? What are some of the
advantages and disadvantages of each?
1-7
Process Selection
• Projects
• one-of-a-kind production of a product to customer order
• Batch production
• process many different jobs at the same time in groups or
batches
• Mass production
• produce large volumes of a standard product for a mass
market
• Continuous production
• used for very-high volume commodity products
6-8
Product-Process Matrix
6-9
Types of Processes
Type of
product
Type of
customer
Product
demand
PROJECT
BATCH
MASS
CONT.
Unique
Made-toorder
Made-tostock
Commodity
(customized)
(standardized )
Few
individual
customers
Mass
market
Mass
market
Fluctuates
Stable
Very stable
One-at-atime
Infrequent
6-10
Types of Processes
PROJECT
BATCH
MASS
CONT.
Demand
volume
Very low
Low to
medium
High
Very high
No. of
different
products
Infinite
variety
Many, varied
Few
Very few
Production
system
Long-term
project
Discrete, job
shops
Repetitive,
assembly
lines
Continuous,
process
industries
6-11
Types of Processes
PROJECT
BATCH
MASS
CONT.
Equipment
Varied
Generalpurpose
Specialpurpose
Highly
automated
Primary type
of work
Specialized
contracts
Fabrication
Assembly
Mixing,
treating,
refining
Worker skills
Experts,
craftspersons
Wide range
of skills
Limited
range of
skills
Equipment
monitors
6-12
Types of Processes
PROJECT
Advantages
Disadvantages
Examples
BATCH
MASS
CONT.
Custom work,
latest technology
Flexibility,
quality
Efficiency,
speed,
low cost
Highly efficient,
large capacity,
ease of control
Non-repetitive,
small customer
base, expensive
Costly, slow,
difficult to
manage
Capital
investment;
lack of
responsiveness
Difficult to change,
far-reaching errors,
limited variety
Construction,
shipbuilding,
spacecraft
Machine shops,
print shops,
bakeries,
education
Automobiles,
televisions,
computers,
fast food
Paint, chemicals,
foodstuffs
6-13
Stop & Think
Think of examples of production processes
that fit into each category on the
product/process matrix.
1-14
Process Selection With
Break-Even Analysis
• Study cost trade-offs based on demand volume
• 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
6-15
Process Selection With
Break-Even Analysis
• Total revenue
• price times volume sold
• Profit
• difference between total revenue and total cost
6-16
Process Selection With
Break-Even Analysis
Total cost = fixed cost + total variable cost
TC = cf + vcv
Total revenue = volume x price
TR = vp
Profit = total revenue - total cost
Z = TR – TC = vp - (cf + vcv)
cf = fixed cost
V = volume (i.e., number of units produced and sold)
cv = variable cost per unit
p = price per unit
6-17
Process Selection With
Break-Even Analysis
TR = TC
vp = cf + vcv
vp - vcv = cf
v(p - cv) = cf
cf
v= p-c
v
Solving for Break-Even Point (Volume)
6-18
Break-Even Analysis
Fixed cost = cf = $2,000
Variable cost = cv = $50 per unit
Price = p = $100 per unit
Break-even point is
cf
v= p-c
v
6-19
Break-Even Analysis
Fixed cost = cf = $2,000
Variable cost = cv = $50 per unit
Price = p = $100 per unit
Break-even point is
cf
2000
v= p-c =
= 40 units
v
100 - 50
6-20
Break-Even Analysis: Graph
6-21
Process Selection – Multiple Processes
Process A
Process B
$2,000 + $50v = $10,000 + $30v
6-22
Process Selection – Multiple Processes
Process A
Process B
$2,000 + $50v = $10,000 + $30v
$20v = $8,000
v = 400 units
Below or equal to 400, choose A
Above or equal to 400, choose B
6-23
Multiple Processes – Indifference Point
6-24
Stop & Think
Fixed cost
Variable cost
Selling price
Process A
Process B
$500,000
$750,000
$25 per unit
$23 per unit
$35 per unit
What is the breakeven point for Process A? Process B?
What is the preferred process if the demand volume is
estimated to be 120,000 units? 150,000 units?
What is the point of indifference between the two
processes?
1-25
Process Plans
• Set of documents that detail manufacturing and
service delivery specifications
• assembly charts
• operations sheets
• quality-control check-sheets
6-26
Assembly Chart
6-27
Operations Sheet for Plastic Part
Part name
Crevice Tool
Part No.
52074
Usage
Hand-Vac
Assembly No. 520
Oper. No.
Description
Dept.
Machine/Tools
Time
10
Pour in plastic bits
041
Injection molding
2 min
20
Insert mold
041
#076
2 min
30
Check settings
& start machine
041
113, 67, 650
20 min
40
Collect parts & lay flat
051
Plastics finishing
10 min
50
Remove & clean mold
042
Parts washer
15 min
60
Break off rough edges
051
Plastics finishing
10 min
6-28
Process Analysis
• Systematic study of all aspects of a process
•
•
•
•
make it faster
more efficient
less costly
more responsive
• Basic tools
• process flowcharts
• diagrams
• maps
6-29
Building a Flowchart
•
•
•
•
•
•
•
Determine objectives
Define process boundaries
Define units of flow
Choose type of chart
Observe process and collect data
Map out process
Validate chart
6-30
Flow Charts in Microsoft Visio
6-31
Process Flowcharts
• Look at manufacture of product or delivery of
service from broad perspective
• Incorporate
• nonproductive activities (inspection, transportation,
delay, storage)
• productive activities (operations)
6-32
Process Flowchart Symbols
Operation
Inspection
Transportation
Delay
Storage
6-33
Process Flowchart of Apple Processing
6-34
Visio Flowcharts
6-35
Flowcharts in Excel
6-36
Process Map
or Swimlane
Chart of
Restaurant
Service
6-37
Process Innovation
Total redesign of a process for breakthrough improvements
Continuous
improvement refines
the breakthrough
Breakthrough
Improvement
Continuous improvement
activities peak; time to
reengineer process
6-38
From Function to Process
Sales
Manufacturing
Purchasing
Accounting
Product Development
Order Fulfillment
Supply Chain Management
Customer Service
Function
Process
6-39
Process
Innovation
Customer
Requirements
Strategic
Directives
Baseline Data
Benchmark
Data
Goals for Process
Performance
High - level
Process map
Innovative
Ideas
Detailed
Process Map
Model
Validation
Pilot Study
of New Design
No
Goals
Met?
Yes
Design
Principles
Key
Performance
Measures
Full Scale
Implementation
6-40
High-Level Process Map
6-41
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
6-42
Principles for Redesigning Processes
• 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 the process
• Connect, collect, and create knowledge around
process through all who touch it
• Personalize process with preferences and habits
of participants
6-43
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
6-44
Techniques for Generating
Innovative Ideas
• 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?
6-45
Stop & Think
Technology is a common disruptor.
Brainstorm some examples of how
technology has encouraged innovative,
even radical, process redesign.
1-46
Financial Justification of Technology
• Purchase cost
• Includes add-ons to make technology work
• Operating Costs
• Visualize how the technology will be used
• Annual Savings
• Better quality and efficiency save money
• Revenue Enhancement
• New technology can enhance revenue
6-47
Financial Justification of Technology
• Replacement Analysis
• When to upgrade to new technology depends
on competitive environment
• Risk and Uncertainty
• It is risky to invest and risky to
• Piecemeal Analysis
• Make sure new and existing technology are
compatible
6-48
Advanced Components of Manufacturing
6-49
Product Technology
• Computer-aided design (CAD)
• Creates and communicates designs electronically
• Group technology (GT)
• Classifies designs into families for easy retrieval and
modification
• Computer-aided engineering (CAE)
• Tests functionality of CAD designs electronically
• Collaborative product commerce (CPC)
• Facilitates electronic communication and exchange of
information among designers and suppliers
6-50
Product Technology
• Product data management (PDM)
• Keeps track of design specs and revisions for the life
of the product
• Product life cycle management (PLM)
• Integrates decisions of those involved in product
development, manufacturing, sales, customer service,
recycling, and disposal
• Product configuration
• Defines products “configured” by customers who have
selected among various options, usually from a Web
site
6-51
Process Technology
• Standard for exchange of product model data (STEP)
• Set standards for communication among different CAD vendors;
translates CAD data into requirements for automated inspection and
manufacture
• Computer-aided design and manufacture (CAD/CAM)
• Electronic link between automated design (CAD) and automated
manufacture (CAM)
• Computer aided process (CAPP)
• Generates process plans based on database of similar requirements
• E-procurement
• Electronic purchasing of items from e-marketplaces, auctions, or
company websites
6-52
Manufacturing Technology - 1
• Computer numerically control (CNC)
• Machines controlled by software to perform a range of
operations with the help of automated tool changers;
collects processing information and quality data
• Flexible manufacturing system (FMS)
• A collection of CNC machines connected by an
automated material handling system to produce a
wide variety of parts
• Robots
• Programmable manipulators that can perform
repetitive tasks; more consistent than workers but less
flexible
6-53
Manufacturing Technology - 2
• Conveyors
• Fixed-path material handling; move items along a belt or
chain; “reads” package labels and diverts them to
correct destination
• Automatic guided vehicle (AGV)
• Driverless trucks that move material along a specified
path; directed by wire or tape embedded in floor or by
radio frequencies
• Automated storage and retrieval system (ASRS)
• An automated warehouse; items placed in a storage
system and retrieved by fast-moving stacker cranes;
controlled by computer
6-54
Manufacturing Technology - 3
• Process Control
• Continuous monitoring of automated equipment; makes
real-time decisions on ongoing operation, maintenance,
and quality
• Computer-integrated manufacturing (CIM)
• Automated manufacturing systems integrated through
computer technology; also called e-manufacturing
• Additive Manufacturing
• Building up a product layer-by-layer from digital
instructions, 3-D printing
6-55
Information Technology
• Business–to–Business (B2B)
• E-transactions between businesses usually via the Internet
• Business–to–Consumer (B2C)
• E-transactions between businesses and their customers usually via
the Internet
• Internet
• A global information system of computer networks that facilitates
communication and data transfer
• Intranet
• Communication networks internal to an organization; can also be
password (i.e., firewall) protected sites on the Internet
6-56
Information Technology
• Extranet
• Intranets connected to the Internet for shared access with select
suppliers, customers, and trading partners
• Bar Codes
• Series of vertical lines printed on packages that identify item and other
information
• Radio Frequency Identification tags (RFID)
• Integrated circuit embedded in a tag; can send and receive information; a
“twenty-first century bar code” with read/write capabilities
• Electronic data interchange (EDI)
• Computer-to-computer exchange of business documents over a proprietary
network; very expensive and inflexible
6-57
Information Technology
• Extensible markup language (XML)
• A markup language that facilitates computer–to–computer communication
over the Internet by tagging data before its is sent
• Enterprise resource planning (ERP)
• Software for managing key functions of an enterprise, including sales,
marketing, finance, accounting, production, materials management & human
resources
• Supply chain management (SCM)
• Software to manage flow of goods and information among a network of
suppliers, manufacturers and distributors
• Customer relationship management (CRM)
• Software to manage interactions with customers; compiling and analyzing
customer data
6-58
Information Technology
• Decision support systems (DSS)
• Information system to help managers make decisions; includes
quantitative modeling components and interactive components for what-if
analysis
• Expert systems (ES)
• A computer system that uses the knowledge of experts to diagnose or
solve a problem
• Artificial intelligence (AI)
• Field of study replicating elements of human thought and natural
processes in software; includes expert systems, genetic algorithms,
neural networks, and fuzzy logic
6-59
Stop & Think
Find a production process video that you
can describe in terms of the four
strategy choices:
Vertical Integration
Capital Intensity
Process Flexibility
Customer Involvement
1-60
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