copyright 2003 zachary ricketts process choice zac ricketts operations management 345

Copyright 2003 Zachary Ricketts

Process ChoiceProcess Choice

Zac RickettsZac Ricketts

Operations Management 345Operations Management 345


Disclosure of UseDisclosure of Use

This Microsoft Power Point presentation and all material contained with in prepared by Zachary Ricketts is the exclusive property of Zachary Ricketts and shall not be used for any purposes beyond the fulfillment of the project requirements for Operations Management 345 taught by Tom Foster. This material is intended for academic purposes only and any reproduction or distribution through printing, presentation, or any electronic means is specifically prohibited with out expressed written consent from Zachary Ricketts and appropriate compensation. This presentation or any reference, to the material contained with in it is strictly prohibited from being presented on the Internet.



What We Will CoverWhat We Will Cover

• What is a ProcessWhat is a Process• Why is process choice importantWhy is process choice important• How can this be a benefitHow can this be a benefit• What are the componentsWhat are the components• How to choose a ProcessHow to choose a Process• Example and ExerciseExample and Exercise• ConclusionConclusion



What is a ProcessWhat is a Process

““Process” is defined as all operations Process” is defined as all operations or activities that consume or activities that consume significant significant resourcesresources..

ResourcesResources include: The utilization of include: The utilization of materials, labor, energy, and materials, labor, energy, and facility or plant capacity.facility or plant capacity.



Types of ProcessesTypes of Processes

• ProjectProject• Batch ProductionBatch Production• Mass ProductionMass Production• Continuous ProductionContinuous Production



Process ChoiceProcess Choice

Now that you understand what a Now that you understand what a process and what kind are process and what kind are available, you can understand the available, you can understand the need to choose a process that will need to choose a process that will utilize your resources in the most utilize your resources in the most efficient and profitable manner efficient and profitable manner possible.possible.



Process Choice Steps Process Choice Steps

• Know your productKnow your product• Know your customerKnow your customer• Know your competitionKnow your competition• Compare the needs of the product Compare the needs of the product

and customerand customer• Decide on your desired revenues Decide on your desired revenues

and what the market will supportand what the market will support• Layout all of the data togetherLayout all of the data together



Know Your ProductKnow Your Product

• Understand the physical space Understand the physical space requirementsrequirements– Area needed for manufactureArea needed for manufacture– Receiving area for raw materialsReceiving area for raw materials– Shipping area for finished productsShipping area for finished products– Special handling or storage Special handling or storage

requirements for the raw materialsrequirements for the raw materials– Need for flexibilityNeed for flexibility




• Understand the manufacturing Understand the manufacturing needsneeds– MaterialsMaterials– TimeTime– EquipmentEquipment– LaborLabor– FlexibilityFlexibility



Know Your CustomerKnow Your Customer

• Understand your customer’s needsUnderstand your customer’s needs– QuantityQuantity– Time requirementsTime requirements– Quality tolerancesQuality tolerances– Buying habitsBuying habits– Product usageProduct usage



Know Your CompetitionKnow Your Competition

• Understand your competition’s Understand your competition’s processesprocesses– Speed of outputSpeed of output– Quality of productQuality of product– Price of productPrice of product– Company RevenuesCompany Revenues– Identify strengths & weaknessesIdentify strengths & weaknesses– Try to find out why they have Try to find out why they have

succeeded or failedsucceeded or failed



Compare the Needs of the Compare the Needs of the Product & CustomerProduct & Customer

• Understand the correlations Understand the correlations between customer and product between customer and product needsneeds– TimeTime– QuantityQuantity– QualityQuality– ResourcesResources



Decide on Your Desired Revenues Decide on Your Desired Revenues and what the Market will Support and what the Market will Support

• Understand your financial Understand your financial requirements and where the requirements and where the product market isproduct market is– Price / MarginPrice / Margin– QuantityQuantity– QualityQuality



Layout All of the Data Layout All of the Data TogetherTogether

• Bring all of the gathered data Bring all of the gathered data together for Break Even Analysistogether for Break Even Analysis– Establish Total costsEstablish Total costs

• Fixed costs – plant, property, equipment Fixed costs – plant, property, equipment necessarynecessary

• Variable costs – time, materialsVariable costs – time, materials

– Establish Total RevenueEstablish Total Revenue• Volume – quantity that is able to be Volume – quantity that is able to be

produced that consumers will buyproduced that consumers will buy• Price – the price that can be charged and Price – the price that can be charged and

consumers will pay consumers will pay



Using Break Even AnalysisUsing Break Even Analysis

• Break Even is where Total Break Even is where Total Revenues equal Total CostsRevenues equal Total Costs– Total Revenues are equal to Volume Total Revenues are equal to Volume

times Pricetimes Price– Total Costs are equal to Fixed Costs Total Costs are equal to Fixed Costs

plus Total Variable Costsplus Total Variable Costs

TR = TCTR = TC

V x P = FC + TVCV x P = FC + TVC



Understanding the ResultsUnderstanding the Results

• The break even pointThe break even point

$-

$2,500

$5,000

$7,500

$10,000

$12,500

$15,000

0 500

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250 Break-even point

Total RevenueLine

Total CostLine



Processes and CostsProcesses and Costs

• The process type chosen will The process type chosen will impact fixed and variable costsimpact fixed and variable costs

– ProjectProject– Batch ProductionBatch Production– Mass ProductionMass Production– Continuous ProductionContinuous Production

VariableCosts

FixedCosts

High Low



Comparison of Process Comparison of Process OptionsOptions

• Understanding the differences in Understanding the differences in costs at varying outputcosts at varying output– Use the processes total costUse the processes total cost– Identify the Indifference pointIdentify the Indifference point– Evaluate the results compared to Evaluate the results compared to

projected unit salesprojected unit sales– Decide on the most effective processDecide on the most effective process– Re-evaluate Break Even Analysis if Re-evaluate Break Even Analysis if

necessarynecessary



Understanding the ResultsUnderstanding the Results

• The Indifference PointThe Indifference PointTC Process A = TC Process BTC Process A = TC Process B



Example and ExerciseExample and Exercise

• Manufacturing custom luxury boatsManufacturing custom luxury boats




• Materials – Materials – Fiberglass, wood, engine, out-drive, Fiberglass, wood, engine, out-drive, glass, accessoriesglass, accessories

• Time – Time – 20 working days, 75 days fully assembled20 working days, 75 days fully assembled

• Equipment – Equipment – Molds, fabrication, layout & assembly, Molds, fabrication, layout & assembly, hand tools, heavy lift equipmenthand tools, heavy lift equipment

• Labor – Labor – 8 employees8 employees • Flexibility – Flexibility – Minor in hull and main structure, major Minor in hull and main structure, major

flexibility in appearance and accessoriesflexibility in appearance and accessories



Know Your CustomerKnow Your Customer

• Quantity – Quantity – potential sales 25 per yearpotential sales 25 per year

• Time Requirements – Time Requirements – 6 months from 6 months from order to deliveryorder to delivery

• Quality Tolerances – Quality Tolerances – Very HighVery High

• Buying Habits – Buying Habits – Luxury, one time Luxury, one time purchasepurchase

• Product Usage – Product Usage – Recreation and status Recreation and status symbolsymbol



Know Your CompetitionKnow Your Competition

• Speed of Output – Speed of Output – one boat every 14 daysone boat every 14 days

• Quality of Product – Quality of Product – HighHigh

• Price of Product - Price of Product - $500,000 to $750,000$500,000 to $750,000

• Company Total Sales – Company Total Sales – $75,625,000$75,625,000

• Strengths – Strengths – Customer satisfaction, low employee Customer satisfaction, low employee turnoverturnover

• Weaknesses – Weaknesses – High price, decreasing sales, older High price, decreasing sales, older stylestyle



Product & Customer NeedsProduct & Customer Needs

• Time – Time – Manufacturing: 75 DaysManufacturing: 75 Days Customer: 6 months Customer: 6 months

• Quantity – Quantity – Estimated 25 evenly spread over the Estimated 25 evenly spread over the yearyear

• Quality – Quality – both very highboth very high

• Resources – Resources – Must be specialized to meet product Must be specialized to meet product and customer demandsand customer demands



Decide on Your Desired Revenues Decide on Your Desired Revenues and what the Market will Supportand what the Market will Support

• Price - $400,000 to $650,000Price - $400,000 to $650,000• Quantity – 25Quantity – 25• Quality – HighQuality – High



Bring it All TogetherBring it All Together

• Fixed Costs – Fixed Costs – $1,500,000 Batch Production$1,500,000 Batch Production$10,000,000 Mass Production$10,000,000 Mass Production

• Variable Costs – Variable Costs – $350,000 to $550,000 Batch Production$350,000 to $550,000 Batch Production$275,000 to $425,000 Mass Production$275,000 to $425,000 Mass Production

• Volume – Volume – 25 units annually25 units annually

• Price - Price - $400,000 to $650,000$400,000 to $650,000



Break Even PointBreak Even Point

• Batch Production – Batch Production – TR = TCTR = TCV x 525,000 = 1,500,000 + 450,000 x VV x 525,000 = 1,500,000 + 450,000 x VV = 20 UnitsV = 20 Units

• Mass Production –Mass Production –TR = TCTR = TCV x 525,000 = 10,000,000 + 350,000 x VV x 525,000 = 10,000,000 + 350,000 x VV = 57.14 or 58 UnitsV = 57.14 or 58 Units




• Batch ProductionBatch Production

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Break Even

20 Units




• Mass ProductionMass Production

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58 Units



Comparison of Process Comparison of Process OptionsOptions

• The Indifference PointThe Indifference Point

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85 unitsPoint of Indifference

Batch ProductionTotal Costs

Mass productionTotal Costs

Choose Batch Production Choose Mass Production



ConclusionConclusion

• To choose a successful process for your To choose a successful process for your company it is necessary to understand, company it is necessary to understand, quantify, and analyze your product, quantify, and analyze your product, customer, and competition.customer, and competition.

• Utilizing break even analysis and an Utilizing break even analysis and an indifference calculation you will be able indifference calculation you will be able to determine the best process for your to determine the best process for your operations for ultimate efficiency and operations for ultimate efficiency and success.success.



ReferencesReferences

• Glen Knight, Knight Associates. Project Management Glen Knight, Knight Associates. Project Management Boot Camp, Seminar. June 2001.Boot Camp, Seminar. June 2001.

• Leadership Intensive, E-Myth Woldwide, Flamingo Leadership Intensive, E-Myth Woldwide, Flamingo Hotel, Santa Rosa CA. February 2001.Hotel, Santa Rosa CA. February 2001.

• Russell/Taylor III. Operations Management 4Russell/Taylor III. Operations Management 4thth Edition. Edition. Prentice Hall, Inc. New Jersey, 2003.Prentice Hall, Inc. New Jersey, 2003.

• Walter P Smith Jr. CEM Principal, Energy Technology Walter P Smith Jr. CEM Principal, Energy Technology Services International, Inc. Working Relationship, Services International, Inc. Working Relationship, IDACORP Solutions. Boise, Candler NC. August 2001 to IDACORP Solutions. Boise, Candler NC. August 2001 to December 2001.December 2001.

copyright 2003 zachary ricketts process choice zac ricketts operations management 345

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