CHAPTER FIVE

Manufacturing and Service Process Structures

McGraw-Hill/Irwin

Copyright 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

Where We Are Now

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Chapter Part1SupplyChain:AperspectiveforOperationsManagement 1.IntroductiontoManagingOperationsAcrosstheSupplyChain 2.OperationsandSupplyChainStrategy Part2FoundationsofOperationsManagement 3.ManagingProcessesandCapabilities 4.Product/ProcessInnovation 5.ManufacturingandServiceProcessStructures 6.ManagingQuality 7.UnderstandingInventoryFundamentals 8LeanSystems Part3IntegratingRelationshipsAcrosstheSupplyChain 9.CustomerManagement 10.SupplyManagement 11.LogisticsManagement Part4PlanningofintegratedOperationsAcrosstheSupplychain 12.DemandPlanning:ForecastingandDemandManagement 13.SalesandOperationsPlanning 14.IndependentDemandInventoryPlanning 15.MaterialsandResourceRequirementsPlanning Part5ManagingChangeinSupplyChainOperations 16.ProjectManagement 17.EvolvingBusinessModelsandChangeDriversintheSupplyChain

Learning Objectives
1. Distinguish between capacity strategies 2. Identify and explain economies of scale 3. Compare and contrast the seven manufacturing process structures 4. Compare and contrast service process structures 5. Describe four operations layouts 6. Use break-even analysis for process selection
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Capacity Planning
___________: the amount of output that can be created by, a process, with a given level of resources over a given time period

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Economies & Diseconomies of scale

______________________: as volume increases, unit costs decrease to an optimal level ______________________: unit costs increase as an operations size increases

Cost per Unit

Volume (Number of Units)

Figure 5-1
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Reasons for Economies of Scale 1. Allocation of ___________ 2. ___________ and ___________ costs 3. ___________ costs for purchases 4. ______________________

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Capacity Planning Decisions

Time Frame (time required for changes)
Short term (0-6 months)

Limiting Resource
Low-skilled labor

Types of Capacity Change

Over-time, part-time, temporary labor, layoffs

Examples
Restaurant wait staff, bank tellers, production line workers Landscaping equipment, temporary storage Engineers, accountants, machine operators, physicians

Equipment, space Medium term (6-24 months) Specialized labor

Rental, leasing Hiring, firing, contract labor

Equipment, space

Leasing, subcontracting, Distribution/warehousing, equipment installation fast-food restaurant and renovation rebuild, production line renovation New building, outsourcing
Table 5-1

Long term (2+ years)

Physical plant

Automotive plant open or closure, new office building

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Product-Process Matrix

High

Variety Flexibility Cost

Low
Low Volume
Figure 5-2

High
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Activity
Identify a product and competitive priorities for: Project Job Shop Batch Repetitive Continuous Mass Customization Cellular Manufacturing
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Process Structure and Market Orientation

________________________________: unique, customized products ______________________: similar design, customized during production ______________________: produced from standard components and modules ______________________: goods made and held in inventory in advance of customer orders
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Service Process Matrix

Low

Labor

Low

Customization/Customer Interaction

High

Intensity

High

Figure 5-3

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Activity
Think of an example of each:
Service Factory Service Shop Mass Service Professional Service

Think of the last service you purchased:

What category was it? What changes can you suggest to move it to another category? What could be the advantages of the changes?
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Service Blueprinting
______________________: all actions done by customers during service delivery ______________________: employee actions in the face-to-face encounter ______________________: behind the scenes activities ______________________: activities necessary for the service, done by employees without direct customer contact ______________________: tangibles the customers see or collect from the organization

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Service Blueprinting

Figure 5-4

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Operations Layout
______________________: product cannot be moved during production ______________________: groups together similar resources ______________________: resources arranged by regularly occurring sequence of activities

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Line Balancing in Product Layouts

Used to assign individual tasks to work areas for a desired output rate
1. Determine precedence relationships 2. Calculate Takt time =

available production time per day output needed per day

3. Determine minimum number of work stations = Total of all task times/takt time 4.Determine efficiency = [sum of all task times/(actual work stations X takt time)] X 100

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

D A B C E
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Break Even Analysis

Figure 5-4

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Break Even Point

A firm has variable costs of per unit of $3 and annual fixed costs of $30,000. What is the breakeven point if the sales prices is 48 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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Manufacturing/Service Process Summary

1. Strategic capacity decisions include when, where and how much to adjust 2. Economics/Diseconomies of scale affect costs per unit 3. Product-process matrix classifies processes based on volume and variety 4. Service are categorized by customization and labor/capital intensity 5. Services processes can be front or back office 6. Layouts should fit with processes used 7. Process automation affects costs and capabilities
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