Manufacturing Processes
Operations Management
Dr. Ron Lembke
Break-Even Analysis
Given a fixed cost, how many do we
have to make to break even?
 A: buy units @ $200
 B: Make on lathe: $80,000 + $75
each
 C: Machining Center: $200,000 +
$15 each
Which is the cheapest way?
Break-Even Analysis
 If we only sell 1, which is cheapest?
 If we sell a gazillion, which is
cheapest?
Total Costs
Break-Even
Outsource
Draw Lowest
Fixed Cost Line
Volume
Total Costs
Break-Even
Outsource
Lathe
Machining
Center
Volume
Total Costs
Break-Even
Outsource
Lathe
Machining
Center
Volume
Total Costs
Break-Even
Outsource
Lathe
Machining
Center
Volume
Break-Even Analysis
Total Costs
Cost of 1,000 units
A: 200 * 1,000 = 200,000
B: 80,000 + 75*1,000 = 155,000
C: 200,000 + 15*1,000 = 215,000
300k
200k
C
A
B
100k
Volume
1,000
Break-Even Analysis
Cost of 2,000 units
A: 200 * 2,000 = 400,000
B: 80,000 + 75*2,000 = 235,000
C: 200,000 + 15*2,000 = 230,000
Total Costs
400k
300k
A
B
C
200k
100k
Volume
2,000
Break-Even Analysis
Cost of 2,000 units
A: 200 * 3,000 = 600,000
B: 80,000 + 75*3,000 = 305,000
C: 200,000 + 15*3,000 = 245,000
Total Costs
600k
A
500k
400k
300k
B
C
200k
100k
Volume
3,000
Total Costs
Break-Even
Outsource
Lathe
Outsource
Lathe
Machining
Center
Machining
Center
Volume
Break-Even Analysis




When does Lathe become cheaper?
80,000 + 75*x = 200*x
80,000 = 125*x
x = 640
Total Costs
Break-Even Analysis
Outsource
Lathe
Outsource
Lathe
Machining
Center
Machining
Center
640
Volume
Break-Even Analysis
 When does Machining Center become
cheaper?
 80,000 + 75*x = 200,000 + 15*x
 120,000 = 60*x
 x = 2,000
Total Costs
Break-Even Analysis
Outsource
Outsource
Lathe
Lathe
Machining
Center
Machining
Center
640
2,000
Volume
Break-Even Analysis
How much do sales have to grow to
make an investment pay off?
 Fixed costs = $10,000
 Direct labor = $1.50 / unit
 Material = $0.75 / unit
 Sales price = $4.00
 How many units must sell to break
even?

Break-Even Analysis
How to measure the value of a dollar
saved tomorrow?
 Can you say “Net Present Value?”

Break-Even Analysis
How to measure the value of a dollar
saved tomorrow?
 Can you say “Net Present Value?”
I knew you could.

Process Flow Structures

Job Shop - low standardization, every order
is a different product, new design
 Batch Shop - Stable line of products,
produced in batches
 Assembly Line - Discrete parts moving from
workstation to workstation
 Continuous Flow - Undifferentiated flow of
product (beer, paper, etc.)
Process Strategy
Variety
High
Medium
project
Workcenter Manufacturing
Cell
Assembly
Line Continuous
Process
Low
Low
Medium
High
Volume
Process Strategy
Variety
High
Process Focus
(job shops)
Repetitive (cars,
motorcycles)
Medium
Product Focus
(steel, glass)
Low
Low
Medium
High
Volume
Process Focus (Job Shop)
Low volume, high variety, “do it all”
 “Job shop” environment (e.g. Kinko’s)
 High amount of flexibility
 Each job is different
 Relatively high cost per unit
 Very high flexibility

Process Selection / Evolution



Products tend to move through the
four stages over life cycle.
Unit costs decrease as standardization
increases, and production increases.
Flexibility decreases as volume,
standardization increase
Design for Manufacturing -Before
Design for Manufacturing-After
Designing the System

How do we decide where to put
things?
Layout Types
Project or Fixed-position layout
 Process-oriented layout
 Product-oriented layout
 Office layout
 Warehouse layout
 Retail/service layout

Project or Fixed-Position
Design is for stationary project
 Workers & equipment come to site
 Complicating factors

Limited space at site
 Changing material needs


Examples
Ship building
 Highway construction

Process-Oriented Layout
Design places departments with large
flows of material or people together
 Dept. areas have similar processes


e.g., All x-ray machines in same area
Used with process-focused processes
 Examples

Hospitals
 Machine shops

Process-Oriented Layout
Floor Plan
Table Saws
Office
© 1995
Corel Corp.
Drill Presses
Tool Room
© 1995 Corel Corp.
Process Layout
+ Allows specialization - focus on one
skill
+ Allows economies of scale - worker
can watch several machines at once
+ High level of product flexibility
-- Encourages large lot sizes
-- Difficult to incorporate into JIT
-- Makes cross-training difficult
Process-Oriented Layout Steps
Construct ‘from-to-matrix’
 Determine space needs for each dept.
 Develop initial schematic diagram

Determine layout cost,   Xij • Cij
 By trial-and-error, improve initial layout
 Prepare detailed plan


Includes factors besides cost
Process-Oriented Example
You work in facilities engineering. You want
to find the cost of this layout. The cost of
moving 1 load between adjacent dept. is $1.
The cost between nonadjacent dept. is $2.
Dept. 1
Dept. 2
Dept. 3
40 ft.
Dept. 4
Dept. 5
Dept. 6
60 ft.
There are 6! or 720 possibilities! Clearly,
we can’t look at them all.
From-to-Matrix
1
1
2
Dept.
2
50
Department
3
4
5
6
6
100
0
0
20
30
50
10
0
20
0
100
50
0
3
4
5
Number of Trips
0
Schematic Diagram
100
1
50
50
20
2
30
3
10
100
20
4
50
5
6
Schematic Diagram & Cost
100
30
50
1
2
50
20
10
3
100
20
4
50
5
Route Cost #
1 3
2 100
1 2
1 50
1 6
2 20
2 3
1 30
2 4
1 50
2 5
1 10
3 4
2 20
3 6
1 100
4 5
1 50
Cost
=$200
=$ 50
=$ 40
=$ 30
=$ 50
=$ 10
=$ 40
=$100
=$ 50
6
Total Cost
$570
Schematic Diagram & Cost
30
2
50
1
100
100
10
50
20
20
4
50
3
5
Route Cost #
1 2
1 50
1 3
1 100
1 6
1 20
2 3
2 30
2 4
1 50
2 5
1 10
3 4
2 20
3 6
1 100
4 5
1 50
Cost
=$ 50
=$100
=$ 20
=$ 60
=$ 50
=$ 10
=$ 40
=$100
=$ 50
6
Total Cost
$480
Product-Oriented Layout
Facility organized around product
 Design minimizes line imbalance


Delay between work stations
Types: Fabrication line; assembly line
 Examples

Auto assembly line
 Brewery
 Paper manufacturing.

Cellular Layout (Work Cells)
Special case of process-oriented
layout
 Consists of different machines brought
together to make a product
 May be temporary or permanent
 Example: Assembly line set up to
produce 3000 identical parts in a
job shop

Work Cell Floor Plan
Saws
Tool Room
Drills
Work Cell
Office
Work Cell Advantages
Reduces:
Inventory
Floor space
Direct labor
costs
Increases:
Equipment
utilization
Employee
participation
Quality
Work Cell Layout
+ Facilitates cross-training
+ Can easily adjust production volumes
+ Easy to incorporate into JIT
-- Requires higher volumes to justify
-- May require more capital for
equipment
Assembly-Line Balancing
Assembly-Line Balancing
Situation: Assembly-line production.
 Many tasks must be performed, and
the sequence is flexible
 Parts at each station same time
 Tasks take different amounts of time
 How to give everyone enough, but not
too much work for the limited time.

Product-Oriented Layout
Operations
Belt
Conveyor
Precedence Diagram
Draw precedence graph
(times in seconds)
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Cycle Time




The more units you want to produce per hour, the
less time a part can spend at each station.
Cycle time = time spent at each spot
C = 800 min / 32 = 25 min
Time
800 min =Production
13:20
C=
in each day
Required output per day (in units)
Number of Workstations

Given required cycle time, find out the
theoretical minimum number of
stations
Nt =
Sum of task times (T)
Cycle Time (C)
 Nt = 97 / 25 = 3.88 = 4 (must round up)
Assignments
Assign tasks by choosing tasks:
 with
largest number of following tasks
 OR by longest time to complete
Break ties by using the other rule
Number of Following Tasks
Nodes # after
C
6
D
5
A
4
B,E,F
3
G,H
2
I
1
Choose C first, then, if possible,
add D to it, then A, if possible.
Precedence Diagram
Draw precedence graph
(times in seconds)
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Number of Following Tasks
Nodes # after
A
4
B,E,F
3
G,H
2
I
1
A could not be added to first
station, so a new station must be
created with A.
B, E, F all have 3 stations after,
so use tiebreaker rule: time.
B=5
E=8
F=3
Use E, then B, then F.
Precedence Diagram
E cannot be added to A, but E can be
added to C&D.
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Precedence Diagram
Next priority B can be added to A.
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Precedence Diagram
Next priority B can be added to A.
Next priority F can’t be added to either.
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Number of Following Tasks
Nodes # after
G,H
2
I
1
G and H tie on number coming
after.
G takes 15, H is 12, so G goes
first.
Precedence Diagram
G can be added to F.
H cannot be added.
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Precedence Diagram
I is next, and can be added to H, but J
cannot be added also.
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Calculate Efficiency

We know that at least 4 workstations
will be needed. We needed 5.
Efficiencyt =
Sum of task times (T)
Actual # WS * Cycle Time
= 97 / ( 5 * 25 ) = 0.776
 We are paying for 125 minutes of
work, where it only takes 97.

Precedence Diagram
Try choosing longest activities first.
A is first, then G, which can’t be added to A.
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Precedence Diagram
H and I both take 12, but H has more
coming after it, then add I.
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Precedence Diagram
D is next, followed by E, so we combine them, but we could
have combined E&G. We’ll try that later.
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Precedence Diagram
J is next, all alone, followed by C and B.
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Precedence Diagram
F is last. We end up with 6 workstations.
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Precedence Diagram
Go back and try combining G and E
instead of D and E.
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Precedence Diagram
J is next, all alone. C is added to D, and
B is added to A.
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Can we do better?
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Precedence Diagram
F can be added to C&D. Five WS again.
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Reduced CT
Efficiency = 97/100 = 0.97. Much
better.
 If we set CT = 20, we can produce 3
units per hour.
 Goal of 32 units can be produced in 20
* 32 = 640 minutes.
 Significant savings over original 800
minutes.

Can we do better?
If we have to use 5 stations, we can get a
solution with CT = 20.
A
B
G
5
20
E
C
D
8
5
10
F
15
H
3
12
I
J
12
7
Calculate Efficiency

With 5 WS at CT = 20
Efficiencyt =
Sum of task times (T)
Actual # WS * Cycle Time
= 97 / ( 5 * 20 ) = 0.97
 We are paying for 100 minutes of
work, where it only takes 97.

Output and Labor Costs






With 20 min CT, and 800 minute workday
Output = 800 min / 20 min/unit = 40
Don’t need to work 800 min
Goal 25 units: 25 * 20 = 500 min/day
5 workers * 500 min = 2,500 labor min.
We were trying to achieve

4 stations * 800 min = 3,200 labor min.
 Significant labor cost savings
Handling Long Tasks
Long tasks make it hard to get efficient
combinations.
 Consider splitting tasks, if physically
possible.
 If not:

 Parallel
workstations
 use skilled (faster) worker to speed up
Warehouse Layout

Design balances space (cube)
utilization & handling cost
 Similar to process layout
 Items moved between dock
& various storage areas
 Optimum layout depends on
 Variety of items
stored
 No. items picked
© 1995 Corel Corp.
Warehouse Flow
Receiving
Shipping
Warehouse Layout
Try to organize storage in such a way that order pickers
can move through the product in a logical and timely
manner.
Warehouse Layout
Fastest near the front
 Fastest within easy reach
 Bulk storage vs. Single item picking
 Serpentine vs. oval picking order
 Restocking: frequency, safety stock

Cross-Docking
In-coming
Outgoing

Transferring
goods
from incoming
trucks at
receiving docks
to outgoing trucks
at shipping docks
 Avoids placing
goods into
storage
© 1984-1994 T/Maker Co.
© 1995 Corel Corp.
Retail/Service Layout
Design maximizes product exposure to
customers, profitability per square foot
 Decision variables

Store flow pattern
 Allocation of (shelf) space to products


Types
Grid design
 Free-flow design

Video
Retail/Service Layout
Grid Design
Grocery Store
Meat
Milk
Bread
Office
Carts
Checkout
Retail/Service Layout
Free-Flow Design
Apparel Store
Trans.
Counter
Feature
Display
Table
Retail Store
Flow Guidelines



“Prisoner” aisles make you enter
store in a particular route, and pass
by certain displays
Often contain less profitable (for the
store) brands
“Decompression Zone” people walk
past first rows of items before settling
into shopping mode.
Retail Store
Flow Guidelines

Bakery, coffee shop,
restaurant spread aromas
by entrance to stimulate
taste buds
 Siren song of the
Starbucks (Safeway)
 Food samplers throughout
store do same
Retail Store Flow Guidelines

Frequently purchased
items at far sides of stores
so you have to go through
entire store (produce or
meat).
 Profitable sections like
produce placed where you
keep running into them
Meat
Milk
Produce
Retail Store Flow Guidelines

Major items in middle of
aisles so you have to walk
down into middle of aisle
(Cereal, peanut butter)
 ‘Power items’ on both sides
of aisle so you have to look
at both sides
Peanut
Butter
Cereal
Retail Store
Flow Guidelines
Cereal

Quality of produce
section important in
customer decisions
about which stores to
visit, so produce is often
prominently displayed
upon entrance
 People like to see what
they’re looking for, not
read signs
Peanut
Butter
produce
Retail Store
Flow Guidelines

End caps for highvisibility sale items
 Large quantities of
inventory serve as
“psychic stock”
 If there is a lot of it, it
must be on sale
 Stimulates sales
© 1995
Corel
Corp.
Retail Store
Flow Guidelines

Eliminate cross-over
aisles:



less wasted floor
space,
you have to look at
more items,
the more time you
spend in the store, the
more you will buy.
Shelf Space Planogram
5 facings
2 ft.
SUAVE
SUAVE
VO-5
PERT
VO-5
PERT
PERT
VO-5
PERT
VO-5
VO-5
Computerized tool
for shelf-space
management
 Generated from
store’s scanner data
on sales
 Often supplied by
manufacturer
 Example: P&G
PERT

Shelf Placement
Companies prefer to be at eye-level or
at child-reaching level
 Close to leading brands or high-draw
items: snack foods next to the peanut
butter or across from the cereal:
 Lots of kids visit the area

Slotting Fees






Manufacturer pays retailer to get a product into a
store
35,000 new grocery products per year
Grocery stores often stock 30,000 items
Impossible to evaluate all new products to choose
the best new ones
Slotting fees guarantee grocer profits on a product,
help balance risk of trying unknown product.
Grocery is a narrow margin business, slotting fees
can represent a significant revenue source.
Slotting Fees





Senate Small Business Committee held
hearings on them in 2000.
Industry refused to cooperate with GAO.
Growers of produce (not just brand names)
now getting involved and complaining.
Small businesses claim they can’t afford the
big payments big companies can make.
Advocates say small companies can “put
their money where their mouths are” just like
anyone else
Perimeter Items



People follow perimeter pattern
Sale items on end – everyone sees
Half of a store’s profit comes from items on
the perimeter
 Breakfast cereal brings in the most dollars
per square foot
 Manufacturer incentives increase
profitability of soft drinks
 “Anchors” at ends of a section: milk and
butter at opposite ends of dairy case