Chapter 4
Processes and
Technologies
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Process Strategy
Overall approach to producing
goods and services
Defines:
 Capital intensity
 Process flexibility
 Vertical integration
 Customer involvement
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From Function to Process
Sales
Manufacturing
Purchasing
Accounting
Product Development
Order Fulfillment
Supply Chain Management
Customer Service
Function
Process
Figure 4.1
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Types of Processes
Projects
Batch
production
Mass
production
Continuous
production
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Types of Processes
Product
Customer
Demand
Volume
No. of different
products
System
Equipment
Type of work
Skills
Advantages
Disadvantages
Example
Table 4.1
PROJECT
BATCH
MASS
CONTINUOUS
Unique
One-at-a-time
Infrequent
Very low
Infinite
Made to order
Few individuals
Fluctuates
Low to med
Many, varied
Made to stock
Mass market
Stable
High
Few
Commodity
Mass market
Very stable
Very high
Very low
Long-term
Discrete, job
Repetitive,
assembly lines
Varied
General-purpose Special-purpose
Contracts
Fabrication
Assembly
Experts,
Wide range
Limited range
craftspeople
of skills
of skills
Custom work, Flexibility,
Efficiency,
technology
quality
speed, low cost
Nonrepetitive, Costly, slow,
Capital investment,
small customer difficult to
lack of
base, expensive manage
responsiveness
Construction,
Machine shops, Autos, TV’s,
shipbuilding
printing, bakery fast food
Process industry
Highly automated
Mix, treat, refine
Equipment
monitors
Highly efficient
large capacity
Difficult to
change
Paint, chemicals,
food
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Process Selection with
Break-Even Analysis
Total cost = fixed cost + total variable cost
TC = cf + vcv
Total revenue = volume x price
TR = vp
Profit = total revenue - total cost
Z = TR - TC
= vp - (cf + vcv)
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Process Selection with
Break-Even Analysis
Total cost = fixed cost + total variable cost
TC = cf + vcv
Total revenue = volume x price
TR = vp
Profit = total revenue - total cost
Z = TR - TC
= vp - (cf + vcv)
cf
v
cv
p
= fixed cost
= volume (i.e., number of units produced and sold)
= variable cost per unit
= price per unit
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Solving for
Break-Even Volume
TR = TC
vp = cf + vcv
vp - vcv = cf
v(p - cv) = cf
cf
v= p-c
v
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Break-Even Analysis
Fixed cost = cf = $2,000
Variable cost = cv = $5 per raft
Price = p = $10 per raft
Example 4.1
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Break-Even Analysis
Fixed cost = cf = $2,000
Variable cost = cv = $5 per raft
Price = p = $10 per raft
The break-even point is
cf
2000
v= p-c =
= 400 rafts
v
10 - 5
Example 4.1
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Break-Even Analysis
Fixed cost = cf = $2,000
Variable cost = cv = $5 per raft
$3,000 —
Price = p = $10 per raft
$2,000 —
The break-even point is
cf
2000
v= p-c =
= 400 rafts
v
10 - 5
$1,000 —
Units
Example 4.1
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Break-Even Analysis
Fixed cost = cf = $2,000
Variable cost = cv = $5 per raft
$3,000 —
Price = p = $10 per raft
$2,000 —
The break-even point is
cf
2000
Total
v = p - revenue
cv = 10 - 5 = 400 rafts
line
$1,000 —
Units
Example 4.1
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Break-Even Analysis
Fixed cost = cf = $2,000
Variable cost = cv = $5 per raft
$3,000 —
Price = p =Total
$10 per raft
cost
line
$2,000 —
The break-even point is
cf
2000
Total
v = p - revenue
cv = 10 - 5 = 400 rafts
line
$1,000 —
Units
Example 4.1
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Break-Even Analysis
Fixed cost = cf = $2,000
Variable cost = cv = $5 per raft
$3,000 —
Price = p =Total
$10 per raft
cost
line
$2,000 —
The break-even point is
cf
2000
Total
v = p - revenue
cv = 10 - 5 = 400 rafts
line
$1,000 —
400
Break-even point
Units
Example 4.1
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Choosing Between
Two Processes
Process A
Process B
$2,000 + $5v = $10,000 + $2v
$3v = $8,000
v = 2,667 rafts
Example 4.2
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Choosing Between
Two Processes
Process A
Process B
$2,000 + $5v = $10,000 + $2v
$3v = $8,000
v = 2,667 rafts
Below 2,667, choose A
Above 2,667, choose B
Example 4.2
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Choosing Between
Two Processes
$20,000 —
$15,000 —
$10,000 —
$5,000 —
|
1000
|
2000
|
3000
|
4000 Units
Example 4.2
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Choosing Between
Two Processes
$20,000 —
Total cost of
process A
$15,000 —
$10,000 —
$5,000 —
|
1000
|
2000
|
3000
|
4000 Units
Example 4.2
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Choosing Between
Two Processes
$20,000 —
Total cost of
process A
Total cost of
process B
$15,000 —
$10,000 —
$5,000 —
|
1000
|
2000
|
3000
|
4000 Units
Example 4.2
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Choosing Between
Two Processes
$20,000 —
Total cost of
process A
Total cost of
process B
$15,000 —
$10,000 —
$5,000 —
Choose
process A
|
1000
|
2000
|
3000
|
4000 Units
Example 4.2
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Choosing Between
Two Processes
$20,000 —
Total cost of
process A
Total cost of
process B
$15,000 —
$10,000 —
$5,000 —
Choose
process A
|
1000
|
2000
Choose
process B
|
3000
|
4000 Units
Example 4.2
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Choosing Between
Two Processes
$20,000 —
Total cost of
process A
Total cost of
process B
$15,000 —
$10,000 —
$5,000 —
Choose
process A
|
1000
|
2000
Choose
process B
|
3000
|
4000 Units
Point of indifference = 2,667 Units
Example 4.2
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Point of Indifference
 Volume where cost of A = cost of B
 Rule for choosing process:
 Above point of indifference
choose process with
lowest variable cost
 Below point of indifference
choose process with
lowest fixed cost
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Process Planning
 Make-or-buy decisions
 Process selection
 Specific equipment selection
 Process plans
 Process analysis
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Make-or-Buy Decisions
1.
2.
3.
4.
5.
6.
Cost
Capacity
Quality
Speed
Reliability
Expertise
Make?
Buy?
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Specific Equipment
Selection
1. Purchase cost
2. Operating cost
3. Annual savings
4. Revenue
enhancement
5. Replacement analysis
6. Risk and uncertainty
7. Piecemeal analysis
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Process Plans
 Blueprints
 Bill of material
 Assembly chart /
product structure
diagram
 Operations process
chart
 Routing sheet
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Bottom bun
Process Plans
Beef patty
Salt
Cheese
SA
Lettuce
Sauce
Onions
First-layer assembly
Middle bun
Beef patty
Salt
Cheese
Lettuce
Sauce
Onions
Pickles
SA
Second-layer assembly
Sesame seed top bun
Wrapper
Completed Big Mac
Figure 4.2
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Operations Process Chart
Part name
Crevice Tool
Part No.
52074
Usage
Hand-Vac
Assembly No. 520
Oper. No. Description
Dept.
Machine/Tools
Time
10
Pour in plastic bits
041
Injection molding
2 min
20
Insert mold
041
#076
2 min
30
Check settings
& start machine
041
113, 67, 650
20 min
40
Collect parts & lay flat
051
Plastics finishing
10 min
50
Remove & clean mold
042
Parts washer
15 min
60
Break off rough edges
051
Plastics finishing
10 min
Figure 4.3
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Process Analysis
 The systematic examination of all aspects
of a process to improve its operation




Faster
More efficient
Less costly
More responsive
 Basic tools
 Process flowchart
 Process diagrams
 Process maps
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Process Flowchart Symbols
Operations
Inspection
Transportation
Delay
Storage
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Process Flowchart
Description
of
process
1
Unload apples from truck
2
Move to inspection station
3
Weigh, inspect, sort
4
Move to storage
5
Wait until needed
6
Move to peeler
7
Apples peeled and cored
15
8
Soak in water until needed
20
9
Place in conveyor
5
10
Move to mixing area
11
Weigh, inspect, sort
Page 1 0f 3
Total
Distance
(feet)
Location: Graves Mountain
Process: Apple Sauce
Time
(min)
Operation
Transport
Inspect
Delay
Storage
Step
Date: 9-30-02
Analyst: TLR
20
100 ft
30
50 ft
360
20 ft
20 ft
30
480
190 ft
Figure 4.4
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Process Diagram
UPS
Active
Bins
Receiving
Reserve
Storage
Picking
Packing
Monogramming
Shipping
Parcel
Post
Next-Day
UPS
Embroidering
Quality
Assurance
Back to
Vendor
Hemming
Gift
Boxing
Figure 4.5
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Process Map
Customer
Waiter
Place order
Is order
complete?
Salad Chef
Dinner Chef
N
Y
Give soup or salad order to chef
Prepare soup or
salad order
Prepare dinner
order
Give dinner order to chef
Drink
Get drinks for customer
Eat salad or
soup
Deliver salad or soup order to customer
Eat dinner
Deliver dinner to customer
Receives check
Deliver check to customer
Gives payment
to waiter
Receive payment for meal
Give order
to waiter
Give order
to waiter
Credit
Cash or
Credit?
Cash
Collect change,
leave tip
Bring change to customer
Run credit card through
Fill in tip
amount
Return credit slip to customer
Figure 4.6
Collect tip
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Extend’s Fast Food Simulation Model
Figure 4.7
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SAP Solution for Apparel
Figure 4.8
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Continuous Improvement
and Breakthroughs
Continuous improvement
refines the breakthrough
Breakthrough
Improvement
Continuous improvement activities
peak; time to reengineer process
Figure 4.9
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Process Reengineering
Customer
requirements
data
Strategic
directive
Benchmark
data
Goals & specifications
for process performance
Design
principle
s
Baseline
analysis
High-level
process map
Key
performance
measures
Detailed
process map
Innovative
ideas
Model
validation
Pilot study of
new design
Full-scale implementation
Figure 4.10
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High-Level Process Map
Subprocess
Subprocess
Input
Output
Subprocess
Performance
Goal
Subprocess
Figure 4.11
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Principles for
Redesigning Processes
1. Remove waste, simplify,
consolidate
2. Link processes to create value
3. Let the swiftest and most capable
execute
4. Flex the process
5. Capture information digitally and
propagate
Table 4.2
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Principles for
Redesigning Processes
6. Provide visibility through
information about process status
7. Fit the process with sensors and
feedback loops
8. Add analytic capabilities
9. Connect, collect and create
knowledge around the process
10. Personalize the process
Table 4.2
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Techniques for Generating
Innovative Ideas






Vary entry point to a problem
Draw analogies
Change your perspective
Try inverse brainstorming
Chain forward as far as possible
Use attribute brainstorming
Table 4.3
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Information Technology
 Management Information Systems
(MIS)
 Move large amounts of data
 Decision Support Systems (DSS)
 Add decision making support
 Expert System
 Recommend decision based on
expert knowledge
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Decision Support System
Management
Personnel
Accounting
Data
Computer
system:
data
processing
Information:
reports,
model
results
Production
Marketing
Distribution
Other areas
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Decision Support System
Management
Management Information
System
Personnel
Accounting
Data
Computer
system:
data
processing
Information:
reports,
model
results
Production
Marketing
Distribution
Other areas
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Decision Support System
Decision Support System
Management
Management Information
System
Personnel
Accounting
Data
Computer
system:
data
processing
Information:
reports,
model
results
Production
Decisions
Marketing
Distribution
Other areas
Figure 4.12
Quantitative
techniques
What-if? analysis
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Artificial Intelligence
 Neural networks
Emulate interconnections in
brain
 Genetic algorithms
Based on adaptive capabilities in
nature
 Fuzzy logic
Simulate human ability to deal
with ambiguity
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Enterprise Software
Collect, analyze, and make decisions
based on data
ERP - Enterprise Resource Planning
Managing wide range of processes
Human resources, materials management,
supply chains, accounting, finance,
manufacturing, sales force automation,
customer service, customer order entry
Finding hidden patterns through data
mining
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Advanced Communications




Electronic data interchange (EDI)
Internet, extranets
Wireless communications
Teleconferencing &
telecommuting
 Bar coding, RFT
 Virtual reality
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Manufacturing Technology
 Numerically controlled (NC) machines
 Controlled by punched tape
 Computer numerical controlled (CNC)
 Controlled by attached computer
 Direct numerical control (DNC)
 Several NC machines controlled by single
computer
 Flexible manufacturing systems (FMS)
 Includes automated material handling
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Automated Material
Handling
 Conveyors
 Automated guided
vehicle (AGV)
 Automated storage
& retrieval system
(ASRS)
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Flexible Manufacturing
Systems (FMS)
 Programmable machine tools
 Controlled by common computer
network
 Combines flexibility with efficiency
 Reduces setup & queue times
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Flexible Manufacturing
System
CNC
Machine
Finished
goods
Computer
control
room
Terminal
Pallet
Automatic
tool changer
CNC
Machine
Parts
Figure 4.13
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Robotics
 Programmable manipulators
 Follow specified path
 Better than humans with
respect to
 Hostile environments
 Long hours
 Consistency
 Adoption has been slowed by
ineffective integration and
adaptation of systems
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e-Manufacturing
 Real-time sharing of data with trading
partners and customers to drive
collaborative decisions
 CAD - uses software to create & modify
designs
 GT- classifies designs to benefit from prior
experience
 STEP - sets standards for communication
 CAPP - creates processing instructions for
CAM
 CAM - uses programmable automation in
manufacturing
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Components of e-Manufacturing
CAD
GT
CAE
CPC
PDM
Product
life cycle
Product
Definition
B2B, B2C
Products
Bar codes,
RFT, EDI
STEP
ERP
CAD/CAM
Information
Technology
eM
Processes
SCM, CRM
CAPP
DSS/ES/AI
Sourcing &
e-procurement
Manufacture
Internet, Intranet,
extranet,
satellites
CNC
machines
FMS
Robotics
AGV,
ASRS
Process
control
Cells
Multiple factory
and centers sites & suppliers
Figure 4.14
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