Operations Management

Process Strategy Chapter 6

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Operations and Service Management

Dell Excel
Direct From Dell

2000 Pcs and 4000 servers delivered to Walmart in 6 weeks.

3700 Pcs delivered to Deltas 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.
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Operations and Service Management

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
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Operations and Service Management

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.

Operations and Service Management

Process Strategies
Process value creation activities Process strategy organizations 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

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Operations and Service Management

Product-Process Matrix
Low-Volume (Intermittent) High Variety One or few units per run, high variety (allows customization) Repetitive Process (Modular) High-Volume (Continuous) Mass Customization (difficult to achieve, but huge rewards)

Process focus projects, job shop,(machine, print, carpentry) Standard Register

Changes in modules Modest runs, standardized modules Changes in attributes (such as grade, quality, size, thickness, etc.) Long runs only Poor strategy

Repetitive (autos, motorcycles) Harley Davidson

Dell Computer Co.

Product focus (commercial baked goods, steel, glass) Nucor Steel

Operations and Service Management

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
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Process Focused
Job shop
Many departments and many routings

Many inputs

Many variety of outputs

Operations and Service Management

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%)
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Operations and Service Management

Process-Focus Examples

Bank Hospital

Machine Shop
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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, pcs, household appliances, etc

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Repetitive Focus

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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
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Repetitive Focus - Examples

Clothes Dryer
McDonalds
over 95 billion served

Fast Food

Truck

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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

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Operations and Service Management

Product Focus

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Production Process at Instant Noodles manufacturing

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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%) Lower product flexibility More specialized equipment

Disadvantages

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Product-Focused Examples
Noodles (Continuous, then Discrete)

Light Bulbs (Discrete)

Paper (Continuous)

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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

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Process Strategies
Repetitive Focus
Modular design Flexible equipment

Modular techniques Mass Customization Effective scheduling techniques

High variety, low volume Low utilization (5% - 20%) General purpose equipment
Operations and Service Management

Rapid throughput techniques

Low variety, high volume High utilization (70% - 80%) Specialized equipment
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Process-focused

Product-focused

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?
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Operations and Service Management

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
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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 providers interaction with customer Identifies failure points and uses poka-yokes to avoid failures
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Operations and Service Management

Process Flow Diagram

Customer
Purchasing (order inks, paper, other supplies) Vendors Accounting Receiving Warehousing (ink, paper, etc.) Customer sales representative take order Prepress Department (Prepare printing plates and negatives) Printing Department Collating Department Gluing, binding, stapling, labeling Polywrap Department Shipping
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Information flow Material flow

Time Function Map (Baseline)

Customer Sales Production control Plant A Warehouse Plant B Transport
12 days 13 days 1 day 4 days

Order Product Process Order

Order

Receive product

Wait
Order

Print
WIP

Wait

Wait
WIP

Product

Wait
Product

WIP

WIP

Extrude

Move
1 day 10 days 1 day 9 days

1 day

52 days
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Operations and Service Management

Product

Move

Time Function Map (Target)

Customer Order Product Process Order
Order

Receive product

Sales Production control Plant Warehouse Transport

Wait
Order

Print

WIP

Extrude Product Wait

Product

Move

1 day

2 days

1 day

1 day

1 day

6 days

Product

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Process Chart Hamburger Assembly

Dist. (Ft) Time (Mins )
1.5 .05 2.50 .05 1.0 .5 .5 3.5 .05 .15 .10 .20 .05 3.15

Chart Symbols

Process Description Meat Patty in Storage Transfer to Broiler Broiler Visual Inspection Transfer to Rack Temporary Storage Obtain Buns, Lettuce, etc. Assemble Order Place in Finish Rack

2 4 1 - 2 TOTALS
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Value-added time = Operation time/Total time = (2.50+.20)/3.15=85.7%

Operations and Service Management

The Pizza restaurant blueprint

E. LAWS, Improving tourism and hospitality services

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Operations and Service Management

The Service Process Matrix

Degree of Customization Low Service factory * Airlines Degree of labor Intensity Low * Trucking * Hotels * Resorts and recreation Mass service * Retailing High * Wholesaling Professional service * Doctors * Lawyers High Service shop * Hospitals * Auto repair * Other repair services

* Schools
* Retail aspects of commercial banking

* Accountants * Architects

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Techniques for Improving Service Productivity

Strategy

Technique

Separation

Self-service

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

Postponement Focus

Restricting the offerings

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Techniques for Improving Service Productivity - Continued

Modules
Automation

Modular selection of service. Modular production Separating services that lend themselves to automation Precise personnel scheduling Clarifying the service options Explaining how to avoid

Scheduling Training

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Capacity Planning

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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 organizations objective

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Types of Planning Over a Time Horizon

Long Range Planning
Intermediate Range Planning Short Range Planning
*Limited options exist

Add Facilities Add long lead time equipment Sub-Contract Add Equipment Add Shifts

Add Personnel Build or Use Inventory Schedule Jobs Schedule Personnel Allocate Machinery

* Modify Capacity

Use Capacity
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Operations and Service Management

Definition and Measures of Capacity

Design Capacity: The maximum throughput, or number of units a facility can produce in a period of time. Capacity a firm can expect to receive given its product mix, methods of scheduling, maintenance, and standards of quality. Actual output as a percent of design capacity. Actual output as a percent of effective capacity.

Effective capacity:
Utilization: Efficiency:

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Utilization
Measure of planned or actual capacity usage of a facility, work center, or machine
Utilization Actual Output = Design Capacity Planned hours to be used = Total hours available

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Efficiency
Measure of how well a facility or machine is performing when used
Efficiency Actual output = Effective Capacity Actual output in units = Standard output in units

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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

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Approaches to Capacity Expansion

Expected Demand New Capacity Demand Demand Expected Demand New Capacity

Time in Years Capacity leads demand with an incremental expansion Expected Demand

Time in Years

Capacity leads demand with a one-step expansion Expected Demand

New Capacity Demand Time in Years Attempts to have an average capacity, with an incremental expansion

Time in Years Capacity lags demand with an incremental expansion

Demand

New Capacity

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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
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Operations and Service Management

Managing Capacity
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
1.
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Managing Existing Capacity

Demand Management
Vary prices Vary promotion Capacity Management

Change lead times (e.g., backorders)

Offer complementary products

Vary staffing Change equipment & processes Change methods Redesign the product for faster processing

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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 money

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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
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Breakeven Chart
Total revenue line Breakeven point Total cost = Total revenue Cost in Dollars Profit Profit

Total cost line Variable cost

Loss

Fixed cost

Volume (units/period)

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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, or Purchase 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? Operations and Service Management

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Crossover Chart
Process A: low volume, high variety Process B: Repetitive Process C: High volume, low variety

Fixed cost - Process C Fixed cost - Process B Fixed cost - Process A

Process A

Process B

Process C

Lowest cost process

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