osml4 - process design

Operations and Service Management 1

Operations Management

Process Strategy Chapter 6

2

Dell Excel

Direct From Dell 2000 Pcs and 4000 servers delivered to

Walmart in 6 weeks. 3700 Pcs delivered to Delta’s reservation in 11

days. Manufacturing from Six locations – the latest

one is OptiPlex plant in Texas with a capability to produce 20,000 machines per day.

The command center consists of 100 servers.

Operations and Service Management

3

Dell Excel

Direct From Dell Total plant area 200,000 sq ft ( equivalent

to 23 football fields), however incoming material allocated area is only 100 sq ft – just 2 hours of component inventory.

Finished product inventory – corporate-wise – 5 days compared to similar industry – 50 to 90 days.

Production schedule revised – every two hours


4

Dell Excel

Direct From Dell Online order downloaded – every hour. System notifies suppliers exact material

needs. Parts needed are confirmed within 15

minutes with a delivery time of 1 Hr. 15 minutes.

Delivery average is 2 days. Frictionless trade – between manufacturer,

supplier and customer.


5

Process Strategies

Process – value creation activities Process strategy – organization’s

approach for producing goods or providing services

Objective Meet or exceed customer requirements Meet cost & managerial goals

Has long-run effects Production efficiency Product & volume flexibility Cost & quality


6

Product-Process Matrix

Process focusprojects, job shop,

(machine, print, carpentry)

Standard RegisterRepetitive

(autos, motorcycles)Harley Davidson

Product focus(commercial baked goods, steel, glass)

Nucor Steel

High VarietyOne or few units per run, high variety(allows customization)

Changes in modulesModest runs, standardized modules

Changes in attributes (such as grade, quality, size, thickness, etc.) Long runs only

Mass Customization

(difficult to achieve, but huge rewards)

Dell Computer Co.

Poor strategy

Low-Volume(Intermittent)

Repetitive Process(Modular)

High-Volume(Continuous)


7

Process-Focused Strategy

• Facilities are organized around specific activities or processes

• General purpose equipment and skilled personnel

• High degree of product flexibility

• Typically high costs and low equipment utilization

• Product flows may vary considerably making planning and scheduling a challenge


Process Focused

Job shop


Many Many inputsinputs

Many Many variety variety

of of outputsoutputs

Ma

ny

de

part

me

nts

an

d

ma

ny

rou

tings

9

Process Focus - Pros & Cons

Advantages Greater product flexibility More general purpose equipment –

equipment not dedicated to one product

Disadvantages High variable cost More highly trained personnel More difficult production planning &

control Low equipment utilization (5% to 25%)


10

Process-Focus Examples

Bank

Machine Shop

Hospital


11

Repetitive Focused Strategy

Facilities often organized by assembly lines

Characterized by modules Parts & assemblies made previously

Modules combined for many output options

Other names Assembly line E.g. auto-manufacturing, fast-food, pc’s,

house-hold appliances, etcOperations and Service Management

12

Repetitive Focus


13

Repetitive Focus - Considerations

Product focused process that uses modules

More structured than process-focused, less

structured than product focused

Enables quasi-customization

Using modules, it enjoys economic

advantage of continuous process, and

custom advantage of low-volume, high-

variety model


14

Repetitive Focus - Examples

Truck

Clothes Dryer

Fast Food

McDonald’sover 95 billion served

McDonald’sover 95 billion served


15

Product-Focused Strategy Facilities are organized by product

High volume, low variety

Conversion or further processing of undifferentiated materials such as petroleum, chemicals, or beer

Follows a predetermined sequence of steps, but flow is continuous rather than discrete – highly standardized

Other names Line flow production

Continuous productionOperations and Service Management

16

Product Focus


17

Production Process at Instant Noodles manufacturing


18

Product Focus - Pros & Cons

Advantages Lower variable cost per unit Lower but more specialized labor skills Easier production planning and control Higher equipment utilization (70% to

90%)

Disadvantages Lower product flexibility More specialized equipment


19

Product-Focused Examples

Light Bulbs (Discrete)

Paper (Continuous)

Noodles (Continuous, then Discrete)


20

Mass Customization

Using technology and imagination to rapidly mass-produce products that cater to unique customer desires

Under mass customization the three process models become so flexible that distinctions between them blur, making variety and volume issues less significant


21

Process Strategies

Rapid throughput techniques

Mass Customization

Modular techniques

Repetitive FocusModular design

Flexible equipment

Product-focusedLow variety, high volume

High utilization (70% - 80%)Specialized equipment

Process-focusedHigh variety, low volume

Low utilization (5% - 20%)General purpose equipment

Effective scheduling techniques


22

Process Analysis and Design

Is the process designed to achieve competitive advantage in terms of differentiation, response, or low cost?

Does the process eliminate steps that do not add value?

Does the process maximize customer value as perceived by the customer?

Will the process win orders?


23

Four Tools for Process Design

Flow Diagrams Schematic of movement of materials Helps understanding, analysis and

communication of a process Time-Function Mapping

Flow diagram with time on horizontal axis Nodes indicate activities and branches

indicate flow direction Helps to identify and eliminate waste such

as extra steps, duplication, and delay


24

Four Tools for Process Design Process Charts

Use symbols, time and distance in a structured way to analyze and record activities

Allows focus on value-added activities Service Blue-printing

For products with a high service content Focuses on customer and provider’s

interaction with customer Identifies failure points and uses poka-yokes

to avoid failures


25

Process Flow Diagram

Shipping

Customer

Customer sales representative

take order

Prepress Department(Prepare printing plates

and negatives)

Printing Department

Collating Department

Gluing, binding, stapling, labeling

Polywrap Department

Purchasing(order inks, paper,

other supplies)

Vendors

Receiving

Warehousing(ink, paper, etc.)

Accounting

Information flowMaterial flow


26

Time Function Map(Baseline)

Customer

Sales

Production control

Plant A

Warehouse

Plant B

Transport

Order Product

Process Order

Print

Extrude

Receive product

Wait

Move

Wait Wait Wait

Move

Ord

er

Ord

er

WIP

WIP

WIP W

IP

Prod

uct

Prod

uct

Prod

uct

12 days 1 day 1 day 1 day 1 day13 days 4 days 10 days 9 days

52 days


27

Time Function Map(Target)

1 day 1 day 1 day1 day 2 days

Customer

Sales

Production control

Plant

Warehouse

Transport

Order Product

Process Order

Print Extrude

Receive product

Wait

Wait

Move

Ord

er

Ord

er

Prod

uct

Prod

uct

WIP

6 days

Product


28

Process Chart – Hamburger Assembly

Dist. (Ft)

Time

(Mins)

Chart Symbols

Process Description

- Meat Patty in Storage

1.5 .05 Transfer to Broiler

2.50 Broiler

.05 Visual Inspection

1.0 .05 Transfer to Rack

.15 Temporary Storage

.5 .10 Obtain Buns, Lettuce, etc.

.20 Assemble Order

.5 .05 Place in Finish Rack

3.5 3.15 TOTALS

Value-added time = Operation time/Total time = (2.50+.20)/3.15=85.7%

Ⅾ

Ⅾ

ⅮⅮⅮⅮⅮⅮⅮ

Ⅾ

2 4 1 - 2


29

The Pizza restaurant blueprint

E. LAWS, Improving tourism and hospitality services


The Service Process Matrix


35

Techniques for Improving Service Productivity

Separation

Self-service

Postponement

Focus

Structure service so customers must go where service is offered

Self-service so customers examine, compare and evaluate at their own pace

Customizing at delivery

Restricting the offerings

Strategy Technique


36

Techniques for Improving Service Productivity - Continued

Modules

Automation

Scheduling Training

Modular selection of service. Modular production

Separating services that lend themselves to automation

Precise personnel scheduling

Clarifying the service options

Explaining how to avoid problems


37

Capacity Planning


38

Capacity and Strategy

Capacity decisions must be integrated

into the mission and strategy of

organization

All 10 OM decisions as well as marketing

and finance are impacted by changes in

capacity

Investments in capacity not to be isolated

but a coordinated step to achieve

organization’s objectiveOperations and Service Management

39

Types of Planning Over a Time Horizon

Add FacilitiesAdd long lead time equipment

Schedule Jobs Schedule Personnel Allocate Machinery

Sub-ContractAdd EquipmentAdd Shifts

Add PersonnelBuild or Use Inventory

Long Range Planning

Intermediate Range Planning

Short Range Planning

Modify Capacity Use Capacity

*

*

*Limited options exist


40

Definition and Measures of Capacity

DesignCapacity:

The maximum “throughput,” or number of units a facility can produce in a period of time.

Utilization: Actual output as a percent of design capacity.

Effective capacity:

Capacity a firm can expect to receive given its product mix, methods of scheduling, maintenance, and standards of quality.

Efficiency: Actual output as a percent of effective capacity.


41

Measure of planned or actual capacity usage of a facility, work center, or machine

UtilizationActual Output

Design CapacityPlanned hours to be used

Total hours available

=

=

Utilization


42

Measure of how well a facility or machine is performing when used

EfficiencyActual output

Effective CapacityActual output in units

Standard output in units

=

=

Efficiency


43

Special Requirements for Making Good Capacity Decisions

Forecast demand accurately

Understand the technology and

capacity increments

Find the optimal operating level

(volume)

Build for change


45

Approaches to Capacity Expansion

Expected Demand Expected Demand

Expected Demand Expected Demand

Time in Years Time in Years

Time in YearsTime in Years

Dem

and

Dem

and

Dem

and

Dem

and

New Capacity

New Capacity New Capacity

New Capacity

Capacity leads demand with an incremental expansion Capacity leads demand with a one-step expansion

Capacity lags demand with an incremental expansionAttempts to have an average capacity, with

an incremental expansion


46

Managing Demand

Demand exceeds capacity – curtail demand by raising prices, scheduling long lead times, etc

Capacity exceeds demand – stimulate demand through price reductions, aggressive marketing, etc

Adjusting to seasonal demands – offer products with complementary demand patterns – pdts for which demand is high for one when low for the other


48

Managing Capacity

1. Making staffing changes (increasing or decreasing the number of employees)

2. Adjusting equipment and processes – which might include purchasing additional machinery or selling or leasing out existing equipment

3. Improving methods to increase throughput; and/or

4. Redesigning the product to facilitate more throughput


49

Vary staffing Change equipment

& processes Change methods Redesign the

product for faster processing

Capacity Management

Vary prices Vary promotion Change lead times

(e.g., backorders) Offer

complementary products

Demand Management

Managing Existing Capacity


50

Breakeven Analysis

Technique for evaluating process & equipment alternatives

Objective: Find the point ($ or units) at which total cost equals total revenue

Assumptions Revenue & costs are related linearly to

volume All information is known with certainty No time value of moneyOperations and Service Management

51

Break-Even Analysis

Fixed costs: costs that continue

even if no units are produced:

depreciation, taxes, debt, mortgage

payments, salaries, etc

Variable costs: costs that vary with

the volume of units produced: labor

wages, materials, portion of utilities


52

Breakeven Chart

Fixed cost

Variable cost

Total cost line

Total revenue line

ProfitBreakeven pointTotal cost = Total revenue

Volume (units/period)

Cost

in D

olla

rs

Loss

Profit



Crossover Chart

Smooth Boards Inc., wants to enter the market quickly with a new finish on its ski boards. It has three choices: Repair the old equipment at a cost of $800, Make major modifications at the cost of $1,100, orPurchase new equipment at a net cost of $1,800 If the firm chooses to repair the old equipment, materials and labor cost would be $1.10 per board. If it chooses to make modifications, materials and labor cost would be $0.70 per board. If it buys new equipment, variable costs are estimated at $0.40 per board. Graph the three total cost lines on the same chart (preferably on graph paper)Which alternative would be chosen if more than 3,000 ski-boards can be sold?Which alternative should the firm use if it thinks the market for boards would be between 1,000 and 2,000?What are the cross-over points from the graph?


Crossover Chart

Fixed cost - Process A

Fixed cost - Process BFixed cost - Process C

Total cost - Process CTotal cost - Process B

Total co

st - P

roce

ss A

Process A: low volume, high varietyProcess B: Repetitive

Process C: High volume, low variety

Process CProcess BProcess A Lowest cost process

osml4 - process design

Documents

service managementoperations

productprocess matrixprocess

dell exceldirect

delltotal plant area

sq ft equivalent

optiplex plant

production schedule

incoming material