lecture 6 - process & capacity design
DESCRIPTION
Operation ManagementTRANSCRIPT
OPERATIONS MANAGEMENTOPERATIONS MANAGEMENTLecture # 6:Lecture # 6:
PROCESS & CAPACITY DESIGNPROCESS & CAPACITY DESIGN
Humayun AkhtarHumayun Akhtar
INTRODUCTIONINTRODUCTION
We have studied selection, definition We have studied selection, definition and design of goods and servicesand design of goods and services
Now we will look at their productionNow we will look at their production It is important to find the best way to It is important to find the best way to
produceproduce
PROCESS STRATEGYPROCESS STRATEGY It is an organization’s approach to transform It is an organization’s approach to transform
resources into goods and services.resources into goods and services. The main objective is to find a way to The main objective is to find a way to
produce products and services that meet produce products and services that meet customer’s requirements / and product customer’s requirements / and product specifications within cost and other specifications within cost and other managerial constraints.managerial constraints.
The process thus selected will have a long The process thus selected will have a long term effect on efficieny and production, as term effect on efficieny and production, as well as flexibility, cost and quality of goods.well as flexibility, cost and quality of goods.
TYPES OF PROCESS TYPES OF PROCESS STRATEGIESSTRATEGIES
Process Focus (Standard Register)Process Focus (Standard Register)
Repetitive Focus (Harley Davidson)Repetitive Focus (Harley Davidson)
Product Focus (Nucor Steel)Product Focus (Nucor Steel)
Mass Customization (DELL)Mass Customization (DELL)
PROCESS MATCHING WITH VOLUME PROCESS MATCHING WITH VOLUME & VARIETY& VARIETY
Low VolumeLow Volume High VolumeHigh VolumeRepetitive ProcessRepetitive Process
Process FocusProcess FocusProjects, Job ShopsProjects, Job Shops
Mass Mass CustomizationCustomization
Difficult to achieve Difficult to achieve but huge rewardsbut huge rewards
RepetitiveRepetitiveAssembly linesAssembly lines
Product FocusProduct FocusBakery, Steel, GlassBakery, Steel, Glass
Poor StrategyPoor StrategyVariable Costs HighVariable Costs High
High variety
Changes in Modules
Changes in attributes
vari
ety
volume
PROCESS FOCUSPROCESS FOCUS
A production facility organized around A production facility organized around processes to facilitate low-volume, processes to facilitate low-volume, high variety productionhigh variety production
High degree of product flexibilityHigh degree of product flexibility High variable costsHigh variable costs Extremely low utilization of facilitiesExtremely low utilization of facilities Examples: restaurants, hospitals, Examples: restaurants, hospitals,
machine shopsmachine shops
REPETITIVE FOCUSREPETITIVE FOCUS
A product oriented production process A product oriented production process that uses modules. It’s the classic that uses modules. It’s the classic assembly lineassembly line
More structured and less flexible than More structured and less flexible than product focusproduct focus
Examples: Automobiles, Home Examples: Automobiles, Home Appliances, Fast FoodAppliances, Fast Food
PRODUCT FOCUSPRODUCT FOCUS A production facility organized around A production facility organized around
products; a product oriented, high products; a product oriented, high volume, low variety processvolume, low variety process
Also called Continuous Processes, as Also called Continuous Processes, as they have very long continuous they have very long continuous process runsprocess runs
Standardization and effective quality Standardization and effective quality control essentialcontrol essential
Examples: glass, paper, bulbs, drinks, Examples: glass, paper, bulbs, drinks, cornea transplantscornea transplants
MASS CUSTOMIZATION FOCUSMASS CUSTOMIZATION FOCUS Rapid, low-cost production that caters to Rapid, low-cost production that caters to
constantly changing unique customer constantly changing unique customer desiresdesires
There is high demand for individualized There is high demand for individualized goods and services, e.g. automobiles, goods and services, e.g. automobiles, movies, cereals etcmovies, cereals etc
Economically producing precisely what the Economically producing precisely what the customer wants and when he wants itcustomer wants and when he wants it
It provides the variety of process focused It provides the variety of process focused (low volume) manufacture to product (low volume) manufacture to product focused (high volume) productionfocused (high volume) production
Examples: DELL, NIKE Examples: DELL, NIKE
COMPARISON OF PROCESS COMPARISON OF PROCESS STRATEGIESSTRATEGIES
Each strategy, when matched to Each strategy, when matched to volume and variety can produce a low volume and variety can produce a low cost advantage, fast responsiveness cost advantage, fast responsiveness and differentiated productsand differentiated products
PROCESS ANALYSIS AND PROCESS ANALYSIS AND DESIGNDESIGN
Questions to be asked:Questions to be asked: Is the process designed and capable to Is the process designed and capable to
achieve competitive advantage in terms achieve competitive advantage in terms of low cost, response and differentiation?of low cost, response and differentiation?
Does the process eliminate steps that do Does the process eliminate steps that do not add value?not add value?
Does the process maximize customer Does the process maximize customer value as perceived by the customer?value as perceived by the customer?
Will the process win orders?Will the process win orders?
TOOLS FOR PROCESS ANALYSISTOOLS FOR PROCESS ANALYSIS Flow Diagrams:Flow Diagrams: A drawing used to analyse A drawing used to analyse
movement of people and materialmovement of people and material Time-Function Mapping:Time-Function Mapping: A flow diagram but A flow diagram but
with time added on the horizontal axiswith time added on the horizontal axis Process Chart:Process Chart: Charts using symbols to Charts using symbols to
analyse the movement of people or analyse the movement of people or materialmaterial
Service Blueprinting:Service Blueprinting: A process analysis A process analysis technique that focuses on the customer technique that focuses on the customer and supplier’s interaction with the customerand supplier’s interaction with the customer
SERVICE PROCESS DESIGNSERVICE PROCESS DESIGN
Mass ServiceMass Service
Professional ServiceProfessional Service
Ways to improve service processes:Ways to improve service processes: LayoutLayout Human ResourcesHuman Resources TechnologyTechnology
PROCESS REENGINEERINGPROCESS REENGINEERING It is the fundamental rethinking and It is the fundamental rethinking and
radical redesign of business radical redesign of business processes to bring about dramatic processes to bring about dramatic improvements in performanceimprovements in performance
It can be a factory layout, a It can be a factory layout, a purchasing procedure or an entirely purchasing procedure or an entirely new way of making productsnew way of making products
It focuses on dramatic improvements It focuses on dramatic improvements in cost, time and value.in cost, time and value.
ENVIRONMENTALLY FRIENDLY ENVIRONMENTALLY FRIENDLY PROCESSESPROCESSES
Environmentally friendly ingredientsEnvironmentally friendly ingredients Elimination of animal testingElimination of animal testing Energy efficiencyEnergy efficiency Recyclable products and packagingRecyclable products and packaging Renewable energy sourcesRenewable energy sources Low effluent emission designsLow effluent emission designs
SELECTION OF EQUIPMENT & SELECTION OF EQUIPMENT & TECHNOLOGYTECHNOLOGY
Considerations:Considerations: CostCost QualityQuality CapacityCapacity FlexibilityFlexibility
DESIGN CAPACITYDESIGN CAPACITY
Regardless of process type, OMs have Regardless of process type, OMs have to determine capacityto determine capacity
It is a large portion of fixed costIt is a large portion of fixed cost Too large plant, increased downtimeToo large plant, increased downtime Too small, customers lostToo small, customers lost It is the maximum theoretical output It is the maximum theoretical output
of a system in a given periodof a system in a given period
EFFECTIVE CAPACITYEFFECTIVE CAPACITY The capacity a firm can expect to achieve The capacity a firm can expect to achieve
given its product mix, methods of scheduling, given its product mix, methods of scheduling, maintenance and standards of qualitymaintenance and standards of quality
It is often lower than design capacity as the It is often lower than design capacity as the plant may have been designed for a different plant may have been designed for a different product mixproduct mix
Measures of system performance:Measures of system performance:
Utilization = Utilization = Actual OutputActual Output Design CapacityDesign Capacity
Efficiency = Efficiency = Actual OutputActual Output Effective CapacityEffective Capacity
FORECASTING CAPACITY FORECASTING CAPACITY REQUIREMENTSREQUIREMENTS
Determining future capacity requirements can Determining future capacity requirements can be a complicated procedure as it is based on be a complicated procedure as it is based on future demand.future demand.
When demand can be forecast with a When demand can be forecast with a reasonable degree of precision, determining reasonable degree of precision, determining capacity reqs. Can be straightforward.capacity reqs. Can be straightforward.
First Phase: First Phase: Future demand is forecastFuture demand is forecast Second Phase:Second Phase: Forecast used for capacity Forecast used for capacity
requirementsrequirements
MANAGING DEMANDMANAGING DEMAND Demand exceeds Capacity:Demand exceeds Capacity:
The firm may be able to curtail demand by The firm may be able to curtail demand by raising prices, scheduling long lead times and raising prices, scheduling long lead times and discouraging small margins. Long term solution discouraging small margins. Long term solution is capacity increase.is capacity increase.
Capacity exceeds Demand:Capacity exceeds Demand: The firm may stimulate demand by price The firm may stimulate demand by price
reductions or aggressive marketingreductions or aggressive marketing Adjusting to Seasonal Demands:Adjusting to Seasonal Demands:
The firm may offer products with complimentary The firm may offer products with complimentary demand patternsdemand patterns
BREAK-EVEN ANALYSISBREAK-EVEN ANALYSIS
Break Even Point:Break Even Point: The point in cash terms where the costs The point in cash terms where the costs
equal revenues.equal revenues.
Fixed Costs:Fixed Costs: Costs that continue even if no units are Costs that continue even if no units are
produced, e.g. debt, taxes, depreciationproduced, e.g. debt, taxes, depreciation
Variable Costs:Variable Costs: Costs that vary with the volume of units Costs that vary with the volume of units
produced, e.g. labour, materialsproduced, e.g. labour, materials
THANK THANK YOUYOU