Chapter 4: Manufacturing Processes
Learning Objectives
How production processes are organized
Trade-offs to be considered when designing
a production process
The product-process matrix
Break-even analysis
Designing stations for an assembly line
Organization of Production Processes
Project
Workcenter
Manufacturing Cell
Assembly Line
Continuous Process
Product-Process Matrix:
Framework Describing Layout
Strategies
Low one-of-a-kind
Project
Workcenter
Manufacturing
Cell
Assembly
Line
Continuous
Process
Product
Standardization
High standardized
commodity
product
Low
Product Volume
High
Break-Even Analysis
 A standard approach to choosing among
alternative processes or equipment
 Model seeks to determine the point in
units produced (and sold) where we will
start making profit on the process or
equipment
 Model seeks to determine the point in
units produced (and sold) where total
revenue and total cost are equal
 For machine alternatives A and B, at
what volumes should we use machine A
and at what volumes, machine B?
Break-Even Analysis (Continued)
Break-even Demand=
Purchase cost of process or equipment
Price per unit - Cost per unit
or
Total fixed costs of process or equipment
Unit price to customer - Variable costs per unit
In formula terms: BEP(x) = F/[P-V]
This formula can be used to find any of its
components algebraically if the other
parameters are known
Break-Even Analysis
 Example: Suppose you want to purchase a new computer
that will cost $5,000. It will be used to process
written orders from customers who will pay $25 each
for the service. The cost of labor, electricity and the
form used to place the order is $5 per customer. How
many customers will we need to serve to permit the
total revenue to break-even with our costs?
 Break-even Demand:
= Total fixed costs of process or equip.
Unit price to customer – Variable costs
=5,000/(25-5)
=250 customers
Break-Even Analysis (example)
 Sale Price = $300
 Option 1:
 Purchase from vendor= $200 * Demand
 Option 2:
 Low cost/volume machine (A) =
$80,000 + $75 * Demand
 Option 3:
 High cost/volume machine (B)
= $200,000 + $15 * Demand
Purchase vs. A? A vs. B?
Calculations
 Purchase versus A:
$200 * Demand = $80,000
+ $75 * Demand
($200 * Demand) - ($75 *
Demand) = $80,000
$125 * Demand = $80,000
Demand = $80,000/$125 =
640 units
so – less than 640 units,
purchase; 640 of greater,
use Machine A
 Machine A versus Machine
B:
$80,000 + $75 *Demand =
$200,000 + $15 * Demand
Demand = $120,000/$60 =
2,000 units
so – less that 2000 units
use Machine A; 2000 or
more use Machine B
Break Even Analysis Example
You are starting a new business and your
fixed costs are estimated to be $500,000.
Your product sells for $100 and costs you
$50 to manufacture. What is the breakeven
point? If you sell 15,000 units, what will be
your profit?
 Answer: Break Even Value is 10,000 and Profit is
$250,000
Break Even Analysis Formulas
 Total Revenue = Total Cost
 P x = F + V x implies:
 BEP(x) = F/[P-V]
 Profit = TR-TC = (P-V) x – F
 Breakeven between two machines:
 F1 + V1 x and F2 + V2 x -- assume F2 > F1 & V2 < V1
 BEP(x) = (F2 – F1) / (V1 – V2)
Note: F = Fixed Cost; P = Price; V = Variable Cost
Break-even Problem
Nicole is considering starting a business to manufacture greeting cards and
is investigating two alternatives. Alternative 1 involves purchasing a
computer and printing system for $10,000. The system can produce a
card for 0.50 a card. Alternative 2 is to use a vendor who will make the
cards for her and charge her $0.90 per card. If she plans to sell each
card for $2.50, answer the following questions.
 What is the break-even point for buying the system – i.e. when will she
begin making a profit assuming she can sell the cards at $2.50 a piece.
 Suppose Nicole feels she can sell 10,000 cards a year (assume for your
calculations that she only is in business for one year). Should she make
the cards herself or use the vendor? Calculate the profit for each
option and compare. How much would she save following your advice?
Calculate the breakeven point between buying the cards from the
vendor and using the machine. Are your answers consistent?
Assembly Line Balancing
 Specify the sequential relationships among tasks
 Determine the required workstation cycle time
 Cycle time C = Time available per day / Desired Output per day
 Determine the theoretical minimum number of
workstations
 Theoretical minimum = Sum of all workstation task times / Cycle time C
 Assign tasks, one a time, until the sum of the tasks is
equal to the workstation cycle time
 Use most successor rule or use longest time rule
 Evaluate the efficiency of the balance
 Efficiency = Sum of task times / # Workstations * Cycle time C
 Rebalance if needed
Example 4.2 in the text – The Model J Wagon
 The model J wagon is to be assembled on a conveyor belt.
Five hundred wagons are required per day. Production time
per day is 420 minutes, and the assembly steps and times
for the wagon are as below, as are the precedence
relationships. Find the balance that minimizes the number of
workstations, subject to cycle time and precedence
constraints.
Precedence Graph for Model J Wagon
How should we allocate steps to stations?
Cycle time = Daily Prod time available / Daily required output
Min stations = Sum of task times / cycle time
Allocation method: Use # successors and task times
Model J Wagon Problem: Allocating Steps to
Stations
 Cycle time = Daily Prod time available / Daily required output
 420* 60 sec /500 = 50.4 sec/unit
 Min stations = Sum of task times / cycle time
 195 sec / 50.4 sec = 3.87 approx = 4 stations
 Allocation method: Use # successors and task times
Flexible Line Layouts