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Slides of a portion in Management of production systems taught at NIT CalicutTRANSCRIPT


Suppliers Manufacturers Warehouses &Distribution Centers
Customers
Material Costs
TransportationCosts
TransportationCosts Transportation
CostsInventory CostsManufacturing Costs

The Supply Chain – Another View
Suppliers Manufacturers Warehouses &Distribution Centers
Customers
Material Costs
TransportationCosts
TransportationCosts Transportation
CostsInventory CostsManufacturing Costs
PlanPlan Source Source Make Make Deliver Deliver Buy Buy

What Is Supply Chain Management (SCM)?
• A set of approaches used to efficiently integrate– Suppliers– Manufacturers– Warehouses– Distribution centers
• So that the product is produced and distributed– In the right quantities– To the right locations– And at the right time
• System-wide costs are minimized and• Service level requirements are satisfied
Plan Source Make Deliver Buy

Why Is SCM Difficult?
• Uncertainty is inherent to every supply chain– Travel times– Breakdowns of machines and vehicles– Weather, natural catastrophe, war– Local politics, labor conditions, border issues
• The complexity of the problem to globally optimize a supply chain is significant– Minimize internal costs– Minimize uncertainty– Deal with remaining uncertainty
Plan Source Make Deliver Buy

The Objective of a Supply Chain
• Maximize overall value created• Supply chain value: difference between what
the final product is worth to the customer and the effort the supply chain expends in filling the customer’s request
• Value is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain)

The Objective of a Supply Chain
• Supply chain incurs costs (information, storage, transportation, components, assembly, etc.)
• Supply chain profitability is total profit to be shared across all stages of the supply chain
• Supply chain success should be measured by total supply chain profitability, not profits at an individual stage

The Objective of a Supply Chain
• Sources of supply chain revenue: the customer
• Sources of supply chain cost: flows of information, products, or funds between stages of the supply chain
• Supply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability

Decision Phases of a Supply Chain
• Supply chain strategy or design• Supply chain planning• Supply chain operation

Supply Chain Strategy or Design
• Decisions about the structure of the supply chain and what processes each stage will perform
• Strategic supply chain decisions– Locations and capacities of facilities– Products to be made or stored at various locations– Modes of transportation– Information systems
• Supply chain design must support strategic objectives• Supply chain design decisions are long-term and expensive to
reverse – must take into account market uncertainty

Supply Chain Planning
• Definition of a set of policies that govern short-term operations
• Fixed by the supply configuration from previous phase
• Starts with a forecast of demand in the coming year

Supply Chain Planning
• Planning decisions:– Which markets will be supplied from which locations– Planned buildup of inventories– Subcontracting, backup locations– Inventory policies– Timing and size of market promotions
• Must consider in planning decisions demand uncertainty, exchange rates, competition over the time horizon

Supply Chain Operation• Time horizon is weekly or daily• Decisions regarding individual customer orders• Supply chain configuration is fixed and operating
policies are determined• Goal is to implement the operating policies as
effectively as possible• Allocate orders to inventory or production, set order
due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders
• Much less uncertainty (short time horizon)

Process View of a Supply Chain
• Cycle view: processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages
• Push/pull view: processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull) or in anticipation of a customer order (push)

Cycle View of Supply Chains
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Manufacturer
Supplier

Cycle View of a Supply Chain• Each cycle occurs at the interface between two
successive stages• Customer order cycle (customer-retailer)• Replenishment cycle (retailer-distributor)• Manufacturing cycle (distributor-manufacturer)• Procurement cycle (manufacturer-supplier)• Cycle view clearly defines processes involved and the
owners of each process. Specifies the roles and responsibilities of each member and the desired outcome of each process.

Customer Order Cycle
• Involves all processes directly involved in receiving and filling the customer’s order
• Customer arrival• Customer order entry• Customer order fulfillment• Customer order receiving

Replenishment Cycle
• All processes involved in replenishing retailer inventories (retailer is now the customer)
• Retail order trigger• Retail order entry• Retail order fulfillment• Retail order receiving

Manufacturing Cycle
• All processes involved in replenishing distributor (or retailer) inventory
• Order arrival from the distributor, retailer, or customer
• Production scheduling• Manufacturing and shipping• Receiving at the distributor, retailer, or
customer

Procurement Cycle
• All processes necessary to ensure that materials are available for manufacturing to occur according to schedule
• Manufacturer orders components from suppliers to replenish component inventories
• However, component orders can be determined precisely from production schedules (different from retailer/distributor orders that are based on uncertain customer demand)
• Important that suppliers be linked to the manufacturer’s production schedule

Push/Pull View of Supply Chains
Procurement,Manufacturing andReplenishment cycles
Customer OrderCycle
CustomerOrder Arrives
PUSH PROCESSES PULL PROCESSES

Push/Pull View of Supply Chain Processes
• Supply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand
• Pull: execution is initiated in response to a customer order (reactive)
• Push: execution is initiated in anticipation of customer orders (speculative)
• Push/pull boundary separates push processes from pull processes

Push/Pull View of Supply Chain Processes
• Useful in considering strategic decisions relating to supply chain design – more global view of how supply chain processes relate to customer orders
• Can combine the push/pull and cycle views– L.L. Bean (Figure 1.6)– Dell (Figure 1.7)
• The relative proportion of push and pull processes can have an impact on supply chain performance

Summary of Learning Objectives
• What are the cycle and push/pull views of a supply chain?
• How can supply chain macro processes be classified?
• What are the three key supply chain decision phases and what is the significance of each?
• What is the goal of a supply chain and what is the impact of supply chain decisions on the success of the firm?

Element Traditional management Supply chain management (1)Inventory management Independent efforts Joint reduction of channel approach
inventories (2)Total cost approach Minimize firm costs Channel-wide cost efficiencies (3)Time horizon Short term Long term (4)Amount of information Limited to needs of current As required for planning and sharing and monitoring transaction monitoring processes (5)Amount of coordination Single contact for the transaction Multiple contacts between levels in of multiple levels in the between channel pairs firms and levels of channel channel (6)Joint planning Transaction-based Ongoing (7)Compatibility of Not relevant Compatibility at least for key corporate philosophies relationships (8)Breadth of supplier base Large to increase competition Small to increase coordination
and spread risks (9)Channel leadership Not needed Needed for coordination focus (10)Amount of sharing risks Each on its own Risks and rewards shared over
rewards the long term (11)Speed of operations, “Warehouse” orientation “Distribution center” orientation information and (storage, safety stock) (inventory velocity) interconnecting inventory levels interrupted by barriers to flows; flows; JIT, quick response across
localized to channel pairs the channel

Achieving a strategic fit
• Strategic fit means that both the competitive and supply chain strategy must fit together.
• i.e. both the competitive and supply chain strategies have aligned goals.
• It refers to consistency between the customer priorities that the competitive strategy hopes of satisfy and the supply chain capabilities that the supply chain aims to build

How strategic fit is achieved
• Understanding the customer and supply chain uncertainty– The quantity of the product needed in each lot– The response time that customers are willing to tolerate– The variety of products needed– The service level required– The price of the product
• Understanding the supply chain capabilities
• Achieving strategic fit

Drivers of Supply Chain
• Facilities • Inventory• Transportation• Information• Sourcing• Pricing

Decision areas of SCM
• There are four major decision areas in 1) location, 2) production, 3) inventory, and 4) transportation (distribution), and
There are both strategic and operational elements in each of these decision areas

Facility Planning
Module IIISession 17

Facility Location

Location and Costs
Location decisions based on low cost require careful consideration
Once in place, location-related costs are fixed in place and difficult to reduce
Determining optimal facility location is a good investment

Location Decisions
Long-term decisions Decisions made infrequently Decision greatly affects both fixed and
variable costs Once committed to a location, many
resource and cost issues are difficult to change

Location Decisions
Country Decision Critical Success Factors
1. Political risks, government rules, attitudes, incentives
2. Cultural and economic issues3. Location of markets4. Labor talent, attitudes,
productivity, costs5. Availability of supplies,
communications, energy6. Exchange rates and currency
risksFigure 8.1

Location Decisions
Region/ Community
Decision
Critical Success Factors1. Corporate desires2. Attractiveness of region 3. Labor availability, costs, attitudes
towards unions4. Costs and availability of utilities5. Environmental regulations6. Government incentives and fiscal
policies7. Proximity to raw materials and
customers8. Land/construction costs
MN
WI
MI
IL IN OH
Figure 8.1

Location Decisions
Site Decision Critical Success Factors
1. Site size and cost2. Air, rail, highway, and
waterway systems3. Zoning restrictions4. Proximity of services/
supplies needed5. Environmental impact
issues
Figure 8.1

Factors That Affect Location Decisions
Labor productivity Wage rates are not the only cost Lower production may increase total cost
Labor cost per dayProduction (units per day)
= Cost per unit
Connecticut
= $1.17 per unit$70
60 units
Juarez
= $1.25 per unit$25
20 units

Factors That Affect Location Decisions
Exchange rates and currency risks Can have a significant impact on cost structure Rates change over time
Costs Tangible - easily measured costs such as
utilities, labor, materials, taxes Intangible - less easy to quantify and include
education, public transportation, community, quality-of-life

Factors That Affect Location Decisions
Exchange rates and currency risks Can have a significant impact on cost structure Rates change over time
Costs Tangible - easily measured costs such as
utilities, labor, materials, taxes Intangible - less easy to quantify and include
education, public transportation, community, quality-of-life
Location decisions based on costs alone
can create difficult ethical situations

Factors That Affect Location Decisions
Political risk, values, and culture National, state, local governments attitudes
toward private and intellectual property, zoning, pollution, employment stability may be in flux
Worker attitudes towards turnover, unions, absenteeism
Globally cultures have different attitudes towards punctuality, legal, and ethical issues

Factors That Affect Location Decisions
Proximity to markets Very important to services JIT systems or high transportation costs may
make it important to manufacturers Proximity to suppliers
Perishable goods, high transportation costs, bulky products

Factor-Rating Method
Popular because a wide variety of factors can be included in the analysis
Six steps in the method1. Develop a list of relevant factors called critical
success factors2. Assign a weight to each factor3. Develop a scale for each factor4. Score each location for each factor5. Multiply score by weights for each factor for each
location6. Recommend the location with the highest point
score

Factor-Rating Example
Critical ScoresSuccess (out of 100) Weighted ScoresFactor Weight France Denmark France Denmark
Labor availability and attitude .25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0People-to- car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0Per capita income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3Education and health .21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7Totals 1.00 70.4 68.0

Locational Break-Even Analysis
Method of cost-volume analysis used for industrial locations
Three steps in the method1. Determine fixed and variable costs for each
location2. Plot the cost for each location 3. Select location with lowest total cost for
expected production volume

Locational Break-Even Analysis Example
Three locations:
Akron $30,000 $75 $180,000Bowling Green $60,000 $45 $150,000Chicago $110,000 $25 $160,000
Fixed Variable TotalCity Cost Cost Cost
Total Cost = Fixed Cost + (Variable Cost x Volume)
Selling price = $120Expected volume = 2,000 units

Locational Break-Even Analysis Example
–$180,000 –
–$160,000 –$150,000 –
–$130,000 –
–$110,000 –
––
$80,000 ––
$60,000 –––
$30,000 ––
$10,000 ––
Annu
al c
ost
| | | | | | |
0 500 1,000 1,500 2,000 2,500 3,000Volume
Akron lowest
cost
Bowling Green lowest cost
Chicago lowest cost
Chicago cost curve
Akron co
st
curve
Bowling Green
cost curve

Center-of-Gravity Method
Finds location of distribution center that minimizes distribution costs
Considers Location of marketsVolume of goods shipped to those
markets Shipping cost (or distance)

Center-of-Gravity Method
Place existing locations on a coordinate gridGrid origin and scale is arbitrary Maintain relative distances
Calculate X and Y coordinates for ‘center of gravity’Assumes cost is directly proportional to
distance and volume shipped

Center-of-Gravity Method
x - coordinate =∑dixQi
∑Qi
i
i
∑diyQi
∑Qi
i
i
y - coordinate =
where dix = x-coordinate of location idiy = y-coordinate of location iQi = Quantity of goods moved to or from location i

Center-of-Gravity Method
North-South
East-West
120 –
90 –
60 –
30 –
–| | | | | |
30 60 90 120 150Arbitrary origin
Chicago (30, 120)New York (130, 130)
Pittsburgh (90, 110)
Atlanta (60, 40)
Figure 8.3

Center-of-Gravity Method
Number of ContainersStore Location Shipped per MonthChicago (30, 120) 2,000Pittsburgh (90, 110) 1,000New York (130, 130) 1,000Atlanta (60, 40) 2,000
x-coordinate =(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)
2000 + 1000 + 1000 + 2000= 66.7
y-coordinate =(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
2000 + 1000 + 1000 + 2000= 93.3

Center-of-Gravity Method
North-South
East-West
120 –
90 –
60 –
30 –
–| | | | | |
30 60 90 120 150Arbitrary origin
Chicago (30, 120)New York (130, 130)
Pittsburgh (90, 110)
Atlanta (60, 40)
Center of gravity (66.7, 93.3)+

Assembly Chart

Documents for Production
Assembly drawing Assembly chart Route sheet Work order Engineering change notices (ECNs)

Assembly Drawing
Shows exploded view of product
Details relative locations to show how to assemble the product
Figure 5.11 (a)

Assembly Chart
1
2
3
4
5
6
7
8
9
10
11
R 209 Angle
R 207 Angle
Bolts w/nuts (2)
R 209 Angle
R 207 Angle
Bolt w/nut
R 404 Roller
Lock washer
Part number tag
Box w/packing material
Bolts w/nuts (2)
SA1
SA2
A1
A2
A3
A4
A5
Leftbracket
assembly
Rightbracket
assembly
Poka-yoke inspection
Figure 5.11 (b)
Identifies the point of production where components flow into subassemblies and ultimately into the final product

Route Sheet
Lists the operations and times required to produce a component
Setup OperationProcess Machine Operations Time Time/Unit
1 Auto Insert 2 Insert Component 1.5 .4 Set 56
2 Manual Insert Component .5 2.3 Insert 1 Set 12C
3 Wave Solder Solder all 1.5 4.1components to board
4 Test 4 Circuit integrity .25 .5test 4GY

Work Order
Instructions to produce a given quantity of a particular item, usually to a schedule
Work Order
Item Quantity Start Date Due Date
Production DeliveryDept Location
157C 125 5/2/08 5/4/08
F32 Dept K11

Engineering Change Notice (ECN)
A correction or modification to a product’s definition or documentationEngineering drawingsBill of material
Quite common with long product life cycles, long manufacturing lead times, or rapidly changing
technologies

Operation Process//open the pdf

Process Chart
Figure 7.9

Scrap estimation
• The market estimate specifies the annual volume to be produced for each product.
• To produce the required amount of product, the number of units scheduled through production must equal the market estimate plus a scrap estimate
• Let Pk represent the percentage of scrap produced on the kth operation
• Ok, the desired output of non defective product from operation k, and Ik the production input to operation k
• Ok = Ik – PkIk or Ok = Ik (1-Pk) or Ik = Ok / 1-Pk

• Thus the expected number of units to start into a production for a part having n operations is
estimatemarket O
)1)......(1)(1(
n
211
theisWhere
PPP
OI
n
n
Scrap estimation

Example
• A product has a market estimate of 97,000 components, and requires three processing steps (turning, milling and drilling) having scrap estimates of P1 = 0.04, P2=0.01, and P3- 0.03
• Ans: 105,219

Equipment fractions
• The quantity of equipment fraction required for an operation is called as the equipment fraction.
• The equipment fraction may be determined for an operation by dividing the total time required to perform the operations by the time available to complete the operation

Deterministic model
EHR
SQF
Where F = number of machines required per shiftS = standard time (minutes) per unit producedQ= number of units to be produced per shiftE= actual performance, expressed as a percentage of standard timeH = amount of time available per machineR = reliability of machine, expressed as percent of uptime

INPUT DATA AND ACTIVITIES
1. Flow Of Materials 2. Activity Relationship
3. String diagram
4. Space Requirement 5. Space Available
6. Space Relationship Diagram
7. Modifying considerations 8. Practical Limitations
9. Develop Layout
10. Evaluation
Systematic Layout Proceedure

1. Flows in a layout
a) Flujo en línea recta
b) Flujo en “U”
c) Flujo en serpentín
d) Flujo en “L”
d) Flujo circular ó en “O”
e) Flujo en “S”

69
2. REL chart – REL diagram
• From REL chart, we construct activity relationship diagram (REL diagram).
• The purpose is to depict spatially the relationships of the activities.
• The basic premise is that geographic proximity can be used to satisfy particular relationships.
• For example, when the activity relationships reflect the magnitudes of material flows, pairs of activities having the greatest pair wise flow are located next to each other.
• Similarly, pairs of activities having an A rating are located adjacently.

70
2. REL chart example

71
2. Activity relationship diagram

72
Relationship diagram process

73
Relationship diagram process

74
Designing a layout
• After the block layout is ready, estimate is made of the space requirements.
• This includes space required for machines, equipments, products.
• Estimation of human resources needed is made based on the number of machines operated and production rate.
• Then, space relationship diagrams are made.

• What is the average number of patients demanding treatment?
• What is 150% of average estimated demand?• What is the service level for the 150% average
demand?
Capacity Levels - Example 1

Mid point X Probability P(x) X*P(x)75 0.10 7.5125 0.20 25175 0.30 52.5225 0.20 45275 0.15 41.25325 0.05 16.25
187.5
a. The average number of patients demanding treatment is 188
b. For 150%, average demand capacity is (1.5)(188)=282 patient treatment capacity is required
c. A 95% service level would require a 300 patient treatment capacity

• An organization must install enough automatic processors to provide 800,000 good units per year. Processing time is 30 seconds. But the processors are only 80% efficient. How many automatic processors are required if the firm operates 2000 hours per year?
Capacity Levels - Example 2

• Individual processor capacity = 3600 sec/hr30 sec / unit = 120 units/mac hour
Required capacity = 800,000 units/year(2000 hr/year)(0.8)500 units / hour
No. of processors required = 500 units/hour = 4.2 120 units/mach hr
Capacity Levels - Example 2

79
Sample: Space relationship table

80
Example: Alternate block diagram

81
Example: Alternate block diagram

Dell Computer CompanyMass customization provides a competitive
advantage
Sell custom-built PCs directly to consumer Lean production processes and good product
design allow responsiveness Integrate the Web into every aspect of its business Focus research on software designed to make
installation and configuration of its PCs fast and simple

Process, Volume, and Variety
Process Focusprojects, job shops
(machine, print, carpentry)
Standard Register
Repetitive(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
Poor Strategy (Both fixed and variable
costs are high)
Low Volume
Repetitive Process
High Volume
VolumeFigure 7.1

Process Strategies
How to produce a product or provide a service that Meets or exceeds customer requirements Meets cost and managerial goals
Has long term effects on Efficiency and production flexibility Costs and quality

Process Strategies
Four basic strategies
Process focus Repetitive focus Product focus Mass customization
Within these basic strategies there are many ways they may be implemented

Process Focus 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 Focus
Many inputs
Many variety of outputs
Job Shop
Man
y de
part
men
ts a
nd
man
y ro
uting
s

Accounting
Process Flow Diagram
Information flowMaterial flow
Figure 7.2
COLLATING DEPT GLUING, BINDING, STAPLING, LABELING
POLYWRAP DEPT
SHIPPING
Customer
PRINTING DEPT
PREPRESS DEPTVendors
Receiving
Warehouse
Purchasing
Customer
Customer sales representative

Repetitive Focus
Facilities often organized as assembly lines Characterized by modules with parts and
assemblies made previously Modules may be combined for many
output options Less flexibility than process-focused
facilities but more efficient

Repetitive Focus
Raw materials
and module inputs
Modules combined for many output options
Few modules
Automobile Assembly Line

Process Flow Diagram
THE ASSEMBLY LINETESTING28 tests
Oil tank work cell
Shocks and forks
Handlebars
Fender work cell
Air cleaners
Fluids and mufflers
Fuel tank work cell
Wheel work cell
Roller testing
Incoming parts
From Milwaukee on a JIT arrival schedule
Engines and transmissions
Frame tube bending
Frame-building work cells
Frame machining
Hot-paint frame painting
Crating
Figure 7.3

Product Focus
Facilities are organized by product High volume but low variety of products Long, continuous production runs enable
efficient processes Typically high fixed cost but low variable
cost Generally less skilled labor

Product Focus
Few inputs
Output variations in size, shape,
and packaging
Continuous Work Flow

Product FocusNucor Steel Plant
Conti
nuou
s ca
ster
Continuous cast steel sheared into 24-ton slabs
Hot tunnel furnace - 300 ft
Hot mill for finishing, cooling, and coiling
D
E F
GHI
Scrap steel
Ladle of molten steelElectric furnace
A
BC

Mass Customization
The rapid, low-cost production of goods and service to satisfy increasingly unique customer desires
Combines the flexibility of a process focus with the efficiency of a product focus

Mass Customization
Vehicle models140 286Vehicle types 18 1,212Bicycle types 8 19Software titles 0 400,000Web sites 0 98,116,993Movie releases267 458New book titles40,530 77,446Houston TV channels 5 185Breakfast cereals160 340Items (SKUs) in 14,000 150,000 supermarketsLCD TVs 0 102
Number of ChoicesItem 1970s 21st Century
Table 7.1

Mass Customization
Mass Customization
Effective scheduling techniques
Rapid throughput techniques
Repetitive FocusFlexible peopleand equipment
Process-FocusedHigh variety, low volume
Low utilization (5% to 25%)General-purpose equipment
Product-FocusedLow variety, high volume
High utilization (70% to 90%)Specialized equipment
Figure 7.5
Modular techniquesSupportive
supply chains

Comparison of Processes
Process Focus
(Low volume, high variety)
Repetitive Focus
(Modular)
Product Focus
(High-volume, low-variety)
Mass Customization
(High-volume, high-variety)
Small quantity, large variety of products
Long runs, standardized product made from modules
Large quantity, small variety of products
Large quantity, large variety of products
General purpose equipment
Special equipment aids in use of assembly line
Special purpose equipment
Rapid changeover on flexible equipment
Table 7.2

Comparison of Processes
Process Focus
(Low volume, high variety)
Repetitive Focus
(Modular)
Product Focus
(High-volume, low-variety)
Mass Customization
(High-volume, high-variety)
Operators are broadly skilled
Employees are modestly trained
Operators are less broadly skilled
Flexible operators are trained for the necessary customization
Many job instructions as each job changes
Repetition reduces training and changes in job instructions
Few work orders and job instructions because jobs standardized
Custom orders require many job instructions
Table 7.2

Comparison of Processes
Process Focus
(Low volume, high variety)
Repetitive Focus
(Modular)
Product Focus
(High-volume, low-variety)
Mass Customization
(High-volume, high-variety)
Raw material inventories high
JIT procurement techniques used
Raw material inventories are low
Raw material inventories are low
Work-in-process is high
JIT inventory techniques used
Work-in-process inventory is low
Work-in-process inventory driven down by JIT, lean production
Table 7.2

Comparison of Processes
Process Focus
(Low volume, high variety)
Repetitive Focus
(Modular)
Product Focus
(High-volume, low-variety)
Mass Customization
(High-volume, high-variety)
Units move slowly through the plant
Movement is measured in hours and days
Swift movement of unit through the facility is typical
Goods move swiftly through the facility
Finished goods made to order
Finished goods made to frequent forecast
Finished goods made to forecast and stored
Finished goods often build-to-order (BTO)
Table 7.2

Comparison of Processes
Process Focus
(Low volume, high variety)
Repetitive Focus
(Modular)
Product Focus
(High-volume, low-variety)
Mass Customization
(High-volume, high-variety)
Scheduling is complex, trade-offs between inventory, availability, customer service
Scheduling based on building various models from a variety of modules to forecasts
Relatively simple scheduling, establishing output rate to meet forecasts
Sophisticated scheduling required to accommodate custom orders
Table 7.2

Comparison of Processes
Process Focus
(Low volume, high variety)
Repetitive Focus
(Modular)
Product Focus
(High-volume, low-variety)
Mass Customization
(High-volume, high-variety)
Fixed costs low, variable costs high
Fixed costs dependent on flexibility of the facility
Fixed costs high, variable costs low
Fixed costs high, variable costs must be low
Costing estimated before job, known only after the job
Costs usually known due to extensive experience
High fixed costs mean costs dependent on utilization of capacity
High fixed costs and dynamic variable costs make costing a challenge
Table 7.2

Crossover Charts
Fixed costs
Variable costs
$
High volume, low varietyProcess C
Fixed costs
Variable costs$
RepetitiveProcess B
Fixed costs
Variable costs$
Low volume, high varietyProcess A
Fixed cost Process A Fixed cost
Process BFixed cost Process C
Tota
l cos
t
Total cost
Total cost
V1(2,857) V2 (6,666)
400,000
300,000
200,000
Volume
$
Figure 7.6

Focused Processes
Focus brings efficiency Focus on depth of product line rather
than breadth Focus can be
Customers Products Service Technology

Changing Processes
Difficult and expensive May mean starting over Process strategy determines
transformation strategy for an extended period
Important to get it right

Process Analysis and Design Flow Diagrams - Shows the movement of
materials Time-Function Mapping - Shows flows and time
frame Value-Stream Mapping - Shows flows and time
and value added beyond the immediate organization
Process Charts - Uses symbols to show key activities
Service Blueprinting - focuses on customer/provider interaction

“Baseline” Time-Function Map
Customer
Sales
Production control
Plant A
Warehouse
Plant B
Transport Move
Receive product
Extrude
Wait
Move
Wait
Wait
Order product
Process order
Wait
12 days 13 days 1 day 4 days 1 day 10 days 1 day 0 day 1 day
52 daysFigure 7.7

“Target” Time-Function Map
Customer
Sales
Production control
Plant
Warehouse
Transport Move
Receive product
Extrude
Wait
Order product
Process order
Wait
1 day 2 days 1 day 1 day 1 day6 days
Figure 7.7

Value-Stream Mapping
Figure 7.8

Service Blueprint
Focuses on the customer and provider interaction
Defines three levels of interaction Each level has different management
issues Identifies potential failure points

Notify customer the car is ready
Customer departs
Customer pays bill
F
F
Service BlueprintPersonal Greeting Service Diagnosis Perform Service Friendly Close
Level#3
Level#1
Level#2
Figure 7.10
No
Notifycustomer
and recommendan alternative
provider
Customer arrives for service
Warm greeting and obtain service
request
F
Direct customer to waiting room
F
Perform required work
Prepare invoice
YesYes
F
F
Standard request
Determine specifics
No
Canservice be
done and does customer approve?
F F

Process Analysis Tools Flowcharts provide a view of the big
picture Time-function mapping adds rigor and a
time element Value-stream analysis extends to
customers and suppliers Process charts show detail Service blueprint focuses on customer
interaction

Service Factory Service Shop
Degree of CustomizationLow High
Deg
ree
of L
abor
Low
High
Mass Service Professional Service
Service Process Matrix
Commercial banking
Private banking
General-purpose law firms
Law clinicsSpecialized hospitals
Hospitals
Full-service stockbroker
Limited-service stockbroker
RetailingBoutiques
Warehouse and catalog stores
Fast-food restaurants
Fine-dining restaurants
Airlines
No-frills airlinesFigure 7.11

Service Process Matrix
Labor involvement is high Selection and training highly important Focus on human resources Personalized services
Mass Service and Professional Service
Service Factory and Service Shop Automation of standardized services Low labor intensity responds well to process
technology and scheduling Tight control required to maintain standards

Improving Service Productivity
Strategy Technique Example
Separation Structure service so customers must go where service is offered
Bank customers go to a manager to open a new account, to loan officers for loans, and to tellers for deposits
Self-service Self-service so customers examine, compare, and evaluate at their own pace
Supermarkets and department stores, Internet ordering
Table 7.3

Strategy Technique Example
Postponement Customizing at delivery
Customizing vans at delivery rather than at production
Focus Restricting the offerings
Limited-menu restaurant
Modules Modular selection of service, modular production
Investment and insurance selection, prepackaged food modules in restaurants
Improving Service Productivity
Table 7.3

Strategy Technique Example
Automation Separating services that may lend themselves to automation
Automatic teller machines
Scheduling Precise personnel scheduling
Scheduling ticket counter personnel at 15-minute intervals at airlines
Training Clarifying the service options, explaining how to avoid problems
Investment counselor, funeral directors, after-sale maintenance personnel
Improving Service Productivity
Table 7.3

Improving Service Processes
LayoutProduct exposure, customer education,
product enhancement Human Resources
Recruiting and training Impact of flexibility

Equipment and Technology
Often complex decisions Possible competitive advantage
Flexibility Stable processes
May allow enlarging the scope of the processes

Production Technology Machine technology Automatic identification
systems (AISs) Process control Vision system Robot Automated storage and retrieval systems (ASRSs) Automated guided vehicles (AGVs) Flexible manufacturing systems (FMSs) Computer-integrated manufacturing (CIM)

Machine Technology
Increased precision Increased productivity Increased flexibility Improved environmental impact Reduced changeover time Decreased size Reduced power requirements

Automatic Identification Systems (AISs)
Improved data acquisition Reduced data entry errors Increased speed Increased scope
of process automation
Example – Bar codes and RFID

Process Control
Increased process stability Increased process precision Real-time provision of information for
process evaluation Data available in many forms

Process Control Software

Vision Systems
Particular aid to inspection Consistently accurate Never bored Modest cost Superior to individuals performing the
same tasks

Robots
Perform monotonous or dangerous tasks Perform tasks requiring significant
strength or endurance Generally enhanced consistency and
accuracy

Automated Storage and Retrieval Systems (ASRSs)
Automated placement and withdrawal of parts and products
Reduced errors and labor Particularly useful in inventory and test
areas of manufacturing firms

Automated Guided Vehicle (AGVs)
Electronically guided and controlled carts Used for movement of products and/or
individuals

Flexible Manufacturing Systems (FMSs)
Computer controls both the workstation and the material handling equipment
Enhance flexibility and reduced waste Can economically produce low volume at high
quality Reduced changeover time and increased
utilization Stringent communication requirement between
components

Computer-Integrated Manufacturing (CIM)
Extension of flexible manufacturing systems Backwards to engineering and inventory control Forward into warehousing and shipping Can also include financial and customer service areas
Reducing the distinction between low-volume/high-variety, and high-volume/low-variety production

Computer-Integrated
Manufacturing (CIM)
Figure 7.12

Technology in ServicesService Industry Example
Financial Services
Debit cards, electronic funds transfer, ATMs, Internet stock trading
Education Electronic bulletin boards, on-line journals, WebCT and Blackboard
Utilities and government
Automated one-man garbage trucks, optical mail and bomb scanners, flood warning systems
Restaurants and foods
Wireless orders from waiters to kitchen, robot butchering, transponders on cars that track sales at drive-throughs
Communications Electronic publishing, interactive TV
Table 7.4

Technology in ServicesService Industry Example
Hotels Electronic check-in/check-out, electronic key/lock system
Wholesale/retail trade
ATM-like kiosks, point-of-sale (POS) terminals, e-commerce, electronic communication between store and supplier, bar coded data
Transportation Automatic toll booths, satellite-directed navigation systems
Health care Online patient-monitoring, online medical information systems, robotic surgery
Airlines Ticketless travel, scheduling, Internet purchases
Table 7.4

Process Redesign The fundamental rethinking of business
processes to bring about dramatic improvements in performance
Relies on reevaluating the purpose of the process and questioning both the purpose and the underlying assumptions
Requires reexamination of the basic process and its objectives
Focuses on activities that cross functional lines Any process is a candidate for redesign

Ethics and Environmentally Friendly Processes
Encourage recycling Efficient use of resources Reduction of waste by-products Use less harmful ingredients Use less energy
Reduce the negative impact on the environment

Quality Management
Introduction Session 31
137

Defining Quality
The totality of features and characteristics of a product or service
that bears on its ability to satisfy stated or implied needs
American Society for Quality
138

Different Views
User-based – better performance, more features
Manufacturing-based – conformance to standards, making it right the first time
Product-based – specific and measurable attributes of the product
139

Further Definitions
• “Quality is customer satisfaction”• "fitness for use” (the product should be suitable for
the intended purpose) and• "right first time" (mistakes should be eliminated).
• Unfolding the above definition, defining the word customer: A customer is anyone who is impacted by the product or process:– External customers– Internal customers
140

What is Product?
• A “product” is the output of any process. Three categories
• Goods• Software• Service
141

Customer Satisfaction
• Customer Satisfaction is achieved through two components– Product features and – Freedom from deficiencies
142

• Product features– Refers to the quality of design– The customer population can be segmented by
the level or “grade” of quality desired• Freedom from deficiencies
– It refers to quality of conformance– It is stated in different units, e.g. errors, defects,
failures
Customer Satisfaction
143

Product features Freedom from deficienciesPerformance Product free of defects and errors at delivery,
during usage, and during servicingReliability Sales, billing, and other business free of errorsDurabilityEase of useServiceabilityAestheticsAccuracyTimelinessPerceived qualityValueReputation
Customer Satisfaction
144

JURAN’S TRILOGY ANDQUALITY COSTS
Session 32
145

Universal Process of Managing QualityQuality Planning Quality control Quality ImprovementEstablish quality goals Choose control
subjectsProve the need
Identify customers Choose unit of measure
Identify projects
Discover customer needs Set goals Organize project teamsDevelop product features Create a sensor Diagnose the causesDevelop process features Measure actual
performanceProvide remedies, prove that remedies are effective
Establish process controls, transfer to operations
Interpret the difference
Deal with resistance to change
Take action on the difference
Control to hold the gains
146

• An emphasis on quality can be supportive by identifying and eliminating – the causes of errors and rework, – thereby reducing costs and – making more units of product available
Not over-emphasis or
misguided quality!
Freedom From Deficiencies
147

Freedom From Deficiencies
Lower Deficiencies
Cycle Time
Cost
WasteWarranty
148

Quality Costs
• Internal failure costs• External failure costs• Appraisal costs• Prevention costs
149

Internal failure costs
• These are costs associated with defects (errors, non-conformance, etc.) that are found prior to transfer of the product to the customer
150

• Scrap : the labour, material, and overhead on productive products that cannot be economically repaired
• Rework: the cost of correcting defectives to make them conform to specifications
• Failure analysis: cost of analysing nonconforming product to determine causes
Internal failure costs
151

• Scrap and rework supplies: costs of scrap and rework due to nonconforming product received from suppliers
• One hundred per cent sorting inspection: costs of finding defective units in product lots which contain unacceptably high levels of defectives
• Reinspection and retesting: costs of reinspection and retesting of products that have undergone rework or other revision
Internal failure costs
152

• Avoidable process losses: costs of losses that occur even with conforming product
• Downgrading : the difference between the normal selling price and the reduced produce due to quality reasons
Internal failure costs
153

External Failure Costs
These are costs associated with defects that are found after product is shipped to the customer.
• Warranty charges: Costs involved in replacing or making repairs to products that are still within the warranty period
• Complaint adjustment: costs of investigation and adjustment of justified complaints attributable to defective product or installation
• Returned material: cost associated with receipt and replacement
• Allowances: costs of concessions made to customers
154

Appraisal costs
These are costs incurred in determining the degree of conformance to quality requirements
• Incoming inspection and testing• In-process inspection and testing• Final inspection and testing• Product quality audits• Maintaining accuracy of testing equipments• Inspection and testing of equipment• Evaluation of stock
155

Prevention costsThese are costs incurred in keeping failure and
appraisal costs to a minimum• Quality planning : the activities that create overall
quality plan• New product review: cost of reliability engineering
and other quality related activities associated with the launching of new designs
• Process control: costs of in-process inspection and testing the status of the process
156

• Quality audits: costs of evaluating the execution of activities
• Supplier quality evaluation: costs of evaluating a supplier prior to supplier selection, auditing the activities during the contract
• Training: costs of preparing and conducting the training
157
Prevention costs

Quality CostsHead Amount %Cost of quality failuresDefective stock 3,276 0.37%Repairs to product 73,329 8.31Collect scrap 2,288 0.26Waste scrap 1,87,428 21.26Consumer adjustments 4,08,200 46.31Downgrading products 22,838 2.59Customer ill will Not countedCustomer policy adjustment Not counted
6,97,259 79.10%
158

Cost of appraisalIncoming inspection 32,655 2.68Inspection 1 32,582 3.70Inspection 2 25,200 2.86Spot-check inspection 65,910 7.37
1,47,347 16.61%Cost of PreventionLocal plant quality 7,848 0.89Control engineering, corporate quality
30,000 3.40
37,848 4.29%Grand Total 8,82,454 100.00%
159
Quality Costs

Optimum segment of quality cost model
160
Zone of improvement projectsFailure costs >70%
Zone of indifferenceFailure costs ~ 50%Emphasize is on Quality control
Zone of indifferenceFailure costs <40%Appraisal cost >50%

Gurus of QualityName ContributionShewart Control chart theory with control limits,
assignable and chance causes of variation and rational subgroups
Deming 14 point theory provides the management to improve quality, productivity and competitive position
Juran Juran’s Trilogy for managing quality – being carried out by quality planning, control and improvement
Feiganbaum Customer satisfaction, genuine management involvement, employee involvement, first-line supervision leadership, and company-wide quality control
161

Ishikawa Cause and effect diagram
Crosby “Quality is free”“doing it right the first time”
Taguchi Developed loss function concept that combines cost, target and variation in to one metric. Because the lost function is reactive, he developed the signal to noise ratio as a proactive equivalent
162
Gurus of Quality

STATISTICAL PROCESS CONTROL
163

Variability is inherent in every processNatural or common causes Special or assignable causes
Provides a statistical signal when assignable causes are present
Detect and eliminate assignable causes of variation
Statistical Process Control (SPC)
164

Variation
• Three categories of variation– Within piece variation– Piece to piece variation that occurs among pieces
produced at the same time– Time-to-time variation that occurs in product
produced at different times of the day

• Variation is present due to a combination of factors– Men– Material– Machine– Environment– Inspection
Variation

STATISTICAL PROCESS CONTROL
Session 35
167

Natural Variations
Also called common causes Affect virtually all production processes Expected amount of variation Output measures follow a probability
distribution For any distribution there is a measure of
central tendency and dispersion If the distribution of outputs falls within
acceptable limits, the process is said to be “in control”
168

Assignable Variations
Also called special causes of variation Generally this is some change in the process
Variations that can be traced to a specific reason The objective is to discover when assignable
causes are present Eliminate the bad causes Incorporate the good causes
169

Samples
To measure the process, we take samples and analyze the sample statistics following these steps
(a) Samples of the product, say five boxes of cereal taken off the filling machine line, vary from each other in weightFr
eque
ncy
Weight
#
## #
##
##
#
# # ## # ##
# # ## # ## # ##
Each of these represents one
sample of five boxes of cereal
170

Samples
To measure the process, we take samples and analyze the sample statistics following these steps
(b) After enough samples are taken from a stable process, they form a pattern called a distribution
The solid line represents the
distribution
Freq
uenc
y
Weight171

Samples
To measure the process, we take samples and analyze the sample statistics following these steps
(c) There are many types of distributions, including the normal (bell-shaped) distribution, but distributions do differ in terms of central tendency (mean), standard deviation or variance, and shape
Weight
Central tendency
Weight
Variation
Weight
Shape
Freq
uenc
y
172

Samples
To measure the process, we take samples and analyze the sample statistics following these steps
(d) If only natural causes of variation are present, the output of a process forms a distribution that is stable over time and is predictable Weight
Time
Freq
uenc
y Prediction
173

Samples
To measure the process, we take samples and analyze the sample statistics following these steps
(e) If assignable causes are present, the process output is not stable over time and is not predicable
WeightTime
Freq
uenc
y Prediction
????
???
???
???
???
???
174

Control Charts
Constructed from historical data, the purpose of control charts is to help distinguish between natural variations and variations due to assignable causes
175

Process Control
Frequency
(weight, length, speed, etc.)Size
Lower control limit Upper control limit
(a) In statistical control and capable of producing within control limits
(b) In statistical control but not capable of producing within control limits
(c) Out of control
176

Types of Data
Characteristics that can take any real value
May be in whole or in fractional numbers
Continuous random variables
Variables Attributes Defect-related
characteristics Classify products as
either good or bad or count defects
Categorical or discrete random variables
177

Central Limit Theorem
Regardless of the distribution of the population, the distribution of sample means drawn from the population will tend to follow a normal curve
1. The mean of the sampling distribution (x) will be the same as the population mean m
x = m
s nsx =
2. The standard deviation of the sampling distribution (sx) will equal the population standard deviation (s) divided by the square root of the sample size, n
178

Population and Sampling Distributions
Three population distributions
Beta
Normal
Uniform
Distribution of sample means
Standard deviation of the sample means
= sx =s
n
Mean of sample means = x
| | | | | | |
-3sx -2sx -1sx x +1sx +2sx +3sx
99.73% of all xfall within ± 3sx
95.45% fall within ± 2sx
179

Sampling Distribution
x = m(mean)
Sampling distribution of means
Process distribution of means
180

Control charts for Variables
X bar and R chart
181

Control Charts for Variables
For variables that have continuous dimensions Weight, speed, length,
strength, etc. x-charts are to control
the central tendency of the process R-charts are to control the dispersion of the
process These two charts must be used together
182

Variable control charts
• Quality characteristic– Should be measurable and can be expressed in
numbers• Subgroup size and Method
– A rational subgroup is one in which the variations within the group is only
– Within group variation is used to determine the control limits
– Variation between subgroups is used to evaluate long-term stability

Setting Chart Limits
For x-Charts when we know s
Upper control limit (UCL) = x + zsx
Lower control limit (LCL) = x - zsx
where x = mean of the sample means or a target value set for the processz = number of normal standard deviationssx = standard deviation of the sample means
= s/ ns = population standard deviationn = sample size
184

Setting Control Limits
Hour 1Sample Weight ofNumber Oat Flakes
1 172 133 164 185 176 167 158 179 16
Mean 16.1s = 1
Hour Mean Hour Mean1 16.1 7 15.22 16.8 8 16.43 15.5 9 16.34 16.5 10 14.85 16.5 11 14.26 16.4 12 17.3
n = 9
LCLx = x - zsx = 16 - 3(1/3) = 15 ozs
For 99.73% control limits, z = 3
UCLx = x + zsx = 16 + 3(1/3) = 17 ozs
185

17 = UCL
15 = LCL
16 = Mean
Control Chart for sample of 9 boxes
Sample number
| | | | | | | | | | | |1 2 3 4 5 6 7 8 9 10 11 12
Variation due to assignable
causes
Variation due to assignable
causes
Variation due to natural causes
Out of control
Out of control
186
Setting Control Limits

For x-Charts when we don’t know s
Lower control limit (LCL) = x - A2R
Upper control limit (UCL) = x + A2R
where R = average range of the samplesA2 = control chart factor found in Table x = mean of the sample means
187
Setting Control Limits

Control Chart Factors
Sample Size Mean Factor Upper Range Lower Range n A2 D4 D3
2 1.880 3.268 03 1.023 2.574 04 .729 2.282 05 .577 2.115 06 .483 2.004 07 .419 1.924 0.0768 .373 1.864 0.1369 .337 1.816 0.184
10 .308 1.777 0.22312 .266 1.716 0.284
188

Process average x = 12 ouncesAverage range R = .25Sample size n = 5
189
Setting Control Limits

Setting Control Limits
UCLx = x + A2R= 12 + (.577)(.25)= 12 + .144= 12.144 ounces
Process average x = 12 ouncesAverage range R = .25Sample size n = 5
From previous
Table
190

UCLx = x + A2R= 12 + (.577)(.25)= 12 + .144= 12.144 ounces
LCLx = x - A2R= 12 - .144= 11.857 ounces
Process average x = 12 ouncesAverage range R = .25Sample size n = 5
UCL = 12.144
Mean = 12
LCL = 11.857
191
Setting Control Limits

R – Chart
Type of variables control chart Shows sample ranges over time
Difference between smallest and largest values in sample
Monitors process variability Independent from process mean
192

Setting Chart Limits
For R-Charts
Lower control limit (LCLR) = D3R
Upper control limit (UCLR) = D4R
whereR = average range of the samplesD3 and D4 = control chart factors from Table
193

Setting Control Limits
UCLR = D4R= (2.115)(5.3)= 11.2 pounds
LCLR = D3R= (0)(5.3)= 0 pounds
Average range R = 5.3 poundsSample size n = 5From Table S6.1 D4 = 2.115, D3 = 0
UCL = 11.2
Mean = 5.3
LCL = 0
194

Mean and Range Charts
(a)These sampling distributions result in the charts below
(Sampling mean is shifting upward but range is consistent)
R-chart(R-chart does not detect change in mean)
UCL
LCL
x-chart(x-chart detects shift in central tendency)
UCL
LCL
195

Mean and Range Charts
R-chart(R-chart detects increase in dispersion)
UCL
LCL
(b)These sampling distributions result in the charts below
(Sampling mean is constant but dispersion is increasing)
x-chart(x-chart does not detect the increase in dispersion)
UCL
LCL
196

CONTROL CHARTS FOR ATTRIBUTES
Session 36

Construction of X and R charts
• When setting up X and R charts, first set the R chart
• Because the control limits on the X chart depend on the process variability
• Unless process variability is in control, there is no meaning in the control limits
198

Process capability
Ri is given as 8.1302
X = 37.64Sample Number is 25And sample size is 5• Hence R = 8.1302/25 = 0.32521• LCLR=R*D3= 0.32521*0=0
• UCLR = R*D4=0.3252*(2.114)• The process standard deviation may be estimated as • = R/d2 = 0.32521/2.326 = 0.1398
199
Specification Limits are: 1.50±0.50

• X (double bar) = 1.5056; UCL = 1.69325; LCL=1.31795• The process capability can be measured as, estimating the
fraction of non-conforming products produced as
200
00035.099980.0100015.0
)53648.3(1)61660.3(
1398.0
5056.100.21
1398.0
5056.100.1
}00.2{}00.1{
xPxPp
That is, 0.035% of the product will be outside of the specification
Process Capability

Steps In Creating Control Charts
1. Take samples from the population and compute the appropriate sample statistic
2. Use the sample statistic to calculate control limits and draw the control chart
3. Plot sample results on the control chart and determine the state of the process (in or out of control)
4. Investigate possible assignable causes and take any indicated actions
5. Continue sampling from the process and reset the control limits when necessary
201

Types of Attribute Charts
• Control chart for fraction non conforming – fraction of non-conforming or defective product produced (p chart)
• Control chart for non-conformities – is used to deal with the number of defects or non- conformities ( c chart)
• Control chart for non-conformities per unit –
(u chart )

The Control chart for fraction nonconforming
• The fraction non conforming is defined as the ratio of the number of non conforming items in a population to the total number of items in that population
• The statistics principles for fraction nonconforming is binomial distribution

• The sample fraction non conforming is defined as the ratio of the number of non conforming units in the sample D to the sample size n; that is
• The distribution of ˆ can be obtained from the binomial
n
Dp ˆ
n
pp
p
)1(
is variance theand
ismean the
2p
The Control chart for fraction nonconforming
P

Fraction non conforming control chart
n
pppLCL
pCL
n
pppUCL
)1(
)1(

Problem• Frozen orange juice concentrate is packed in 6-oz cardboard cans. These
cans are formed on a machine by spinning them from cardboard stock and attaching a metal bottom panel.
• By inspection of a can, we may determine whether, when filled it could possibly leak either on the side seam or around the bottom joint. Such a non conforming can has an improper seal on either the side seam or the bottom panel.
• Set up a control to improve the fraction of non conforming cans produced by this machine
• To establish the control chart, 30 samples of n=50 cans each were selected at ½ hour intervals over a 3-shift period in which the machine was in continuous operations.
• The data are shown in the table. • We construct a preliminary control chart to see whether the process was
in control when this data was collected.• Since the 30 samples contained
30
1347
i iD

Sample Number
Number of non-
conforming cans Di
Sample fraction non-conforming Pi
Sample Number
Number of non-
conforming cans Di
Sample fraction non-conforming Pi
1 12 0.24 16 8 0.16
2 15 0.30 17 10 0.20
3 8 0.16 18 5 0.10
4 10 0.20 19 13 0.26
5 4 0.08 20 11 0.22
6 7 0.14 21 20 0.40
7 16 0.32 22 18 0.36
8 9 0.18 23 24 0.48
9 14 0.28 24 15 0.30
10 10 0.20 25 9 0.18
11 5 0.10 26 12 0.24
12 6 0.12 27 7 0.14
13 17 0.34 28 13 0.26
14 12 0.24 29 9 0.18
15 22 0.44 30 6 0.12
347 P(bar)=0.2313

2313.0)50)(30(
3471
mn
Dp
m
i i
)0596.0(32313.050
)7687.0(2313.02313.0
)1(
n
pppUCL
0524.0
2313.0
4102.0
LCL
CL
UCL
Solution

Sample Number
Number of non-conforming cans
Di
Sample fraction non-
conforming Pi
Sample Number
Number of non-
conforming cans Di
Sample fraction non-
conforming Pi
1 12 0.24 16 8 0.16
2 15 0.30 17 10 0.20
3 8 0.16 18 5 0.10
4 10 0.20 19 13 0.26
5 4 0.08 20 11 0.22
6 7 0.14 21 20 0.40
7 16 0.32 22 18 0.36
8 9 0.18 23 24 0.48
9 14 0.28 24 15 0.30
10 10 0.20 25 9 0.18
11 5 0.10 26 12 0.24
12 6 0.12 27 7 0.14
13 17 0.34 28 13 0.26
14 12 0.24 29 9 0.18
15 22 0.44 30 6 0.12
347 P(bar)=0.2313

Revised Center Line
• The new center line is calculated as
2150.0)50)(28(
3471
mn
Dp
m
i i
0407.050
)7850.0(2150.032150.0
3893.050
)7850.0(2150.032150.0
)1(
LCL
n
pppUCL
The process is under controlBut the fraction nonconforming is HIGH!

Sample Number
Number of non-
conforming cans Di
Sample fraction non-conforming Pi
Sample Number
Number of non-conforming
cans Di
Sample fraction non-conforming
Pi
31 9 0.18 43 3 0.0632 6 0.12 44 6 0.1233 12 0.24 45 5 0.1034 5 0.10 46 4 0.0835 6 0.12 47 8 0.1636 4 0.08 48 5 0.1037 6 0.12 49 6 0.1238 3 0.06 50 7 0.1439 7 0.14 51 5 0.1040 6 0.12 52 6 0.1241 2 0.04 53 3 0.0642 4 0.08 54 5 0.10
133 P(bar)=0.1108

00224.050
)8892.0(1108.01108.0
2440.050
)8892.0(1108.01108.0
)1(
LCL
n
pppUCL
Revised Control Limits

A hypothesis test that the process fraction nonconforming in the current process differs from the fraction nonconforming of the previous process
H0: p1=p2
H1: p1>p2
The test statistic is
21
210
11)ˆ1(ˆ
ˆˆ
nnpp
ppZ
1669.0 12001400
)1108.0)(1200()2150.0)(1400(
ˆˆˆ
21
2211
nn
pnpnp

10.7
1200
1
1400
1)8331.0(1669.0
1108.02150.0
11)ˆ1(ˆ
ˆˆ
0
21
210
Z
nnpp
ppZ
Zo = 7.10 > Z0.05= 1.645So we reject the Null hypothesisHence, it is concluded that there is a significant decrease in the process fallout

CONTROL CHARTS FOR NON CONFORMITIES PER UNIT

Control charts for non conformities per unit
• The average number of non conformities per unit is– U(bar)=x/n
• X is a Poisson random variable
n
uuLCL
uCenterLinen
uuUCL
3
3
U bar represents the observed average number of non conformities per unit in a preliminary set of data

Problem
• A personal computer manufacturer wishes to establish a control chart for nonconformities per unit on the final assembly line in 20 samples or 5 computers each are shown in the table

Sample No. i
Sample size, n Total number of Non conformities, xi
Average number of Non conformities per
unit, ui=xi/n
1 5 10 2.02 5 12 2.43 5 8 1.64 5 14 2.85 5 10 2.06 5 16 3.27 5 11 2.28 5 7 1.49 5 10 2.0
10 5 15 3.011 5 9 1.812 5 5 1.013 5 7 1.414 5 11 2.215 5 12 2.416 5 6 1.217 5 8 1.618 5 10 2.019 5 7 1.420 5 5 1.0
193 38.6
93.1
20/6.38
20
20
1
i
iuu

07.05
93.1393.13
93.1
79.35
93.1393.13
n
uuLCL
uCenterLine
n
uuUCL
Calculation of Control Limits

1 4 7 10 13 16 190
0.5
1
1.5
2
2.5
3
3.5
4
Average number of Non conformi-ties per unit, ui=xi/n
UCL
Center Line LCLLinear (LCL)
Construction of the u Control Chart

CONTROL CHART FOR ATTRIBUTES
221

Procedures with Variable Sample SizeRoll No.
No. of Square meters
Total no. of
nonconformities
Number of inspection units in roll, n
No. of non conformities per inspection unit ui
1 500 14 10.0 1.402 400 12 8.0 1.503 650 20 13.0 1.544 500 11 10.0 1.105 475 7 9.5 0.746 500 10 10.0 1.007 600 21 12.0 1.758 525 16 10.5 1.529 600 19 12.0 1.5810 625 23 12.5 1.84
153 107.50
20
1
153/107.5
1.42
i
i
uu
n

Roll No.
ni No. of non conformities per inspection unit ui
1 10.0 1.40 2.55 0.292 8.0 1.50 2.68 0.163 13.0 1.54 2.41 0.434 10.0 1.10 2.55 0.295 9.5 0.74 2.58 0.266 10.0 1.00 2.55 0.297 12.0 1.75 2.45 0.398 10.5 1.52 2.52 0.329 12.0 1.58 2.45 0.39
10 12.5 1.84 2.43 0.41
n
uuUCL 3
n
uuLCL 3
Calculation of Upper and Lower Control Limits

1 2 3 4 5 6 7 8 9 100
0.5
1
1.5
2
2.5
3
No. of non con-formities per inspection unit
UCL
LCL
Center Line
Construction of the u Control Chart

Choice between Attributes and Variable Control Charts
• Attributes control charts– Several quality characteristics can be considered
jointly and the unit classified as nonconforming if it fails to meet the specification on any one characteristic
– Expensive and time consuming measurements can be avoided
225

Variable control charts• Provides more useful information about process
performance• Specific information about the process mean
and variability can be obtained• They often provide leading indicators of
impending trouble• The attribute charts will react only after the
process has changed!226
Choice between Attributes and Variable control charts


Manufacturing Execution Systems
Session 30

Manufacturing Execution System
• Operations scheduling is at the heart of what is currently referred to as Manufacturing Execution systems (MES)
• An MES is an information system that schedules, dispatches, tracks, monitors and controls production on the factory floor

Work Center
• It is an area in a business in which productive resources are organized and work is completed
• A work center may be a single machine, a group of machines, or an area where a particular type of work is done
• These work centers are grouped according to function in a– job-shop environment; or – by product in a flow, assembly line; or– group technology cell configuration

• Scheduling involves determining the order for running the jobs, and also assigning a machine for each job
• Scheduling systems can use either infinite or finite loading
• Scheduling systems are distinguished in how they consider the capacity, in determining the schedule
• Another distinguishing feature is whether the schedule is generated forward or backward in time
Scheduling

Infinite and Finite Loading
• Infinite loading – when work is assigned to a work center simply based on what is needed over time. No consideration is given directly regarding the capacity, except for a rough cut capacity check
• Finite loading: Schedules in detail each resource using the setup time and run time required for each order. Theoretically, all schedules are feasible.

Forward and Backward Scheduling
• Forward Scheduling: refers the method in which the system takes an order and then schedules each operation that must be completed forward in time
• Backward scheduling: Starts from some date in the future (possibly due date) and schedules the required operations in reverse sequence
• MRP system is an example of an infinite, backward scheduling system

Machine/Labour limited
• Processes are referred to as either machine limited or labour limited
• Machine Limited: Equipment is the critical resources to be scheduled
• Labour Limited: People are the key resource to schedule

Type Product Typical scheduling approachContinuous process
Chemicals, steel, wires and cables, liquids, canned goods
Finite forward scheduling of the process; machine limited
High-volume manufacturing
Automobiles, telephones, fasteners, textiles, motors, household fixtures
Finite forward scheduling of the line; machine limited; parts are pulled to the line using just-in-time system
Mid-volume manufacturing
Industrial Parts, High-end consumer products
Infinite forward scheduling of the line; labour limited and machine limited as well; parts are pulled to the line using just-in-time system
Low-volume job shops
Custom or prototype equipment, specialized instruments, low-volume industrial products
Infinite, forward scheduling of jobs: usually labour limited, but certain functions may be machine limited MRP schedule determine priorities

Job sequencing
• The process of determining the job order on some machine or in some work center is known as sequencing
• Priority rules are the rules used in obtaining a sequence

Measures of schedule performance
• Meeting due dates of customers or downstream operations
• Minimizing the flow times• Minimizing work-in-process inventory• Minimizing idle time of machines or workers

Example – Single machine scheduling
• A firm received five orders. Specific scheduling data are provided in the table. There is only one machine. The firm must decide the sequence for the five orders. The evaluation criteria is minimum flow time. Use FCFS and SPT priority rule to decide the sequence
Job (in order of arrival)
Processing time (days)
Due date (days hence)
A 3 5
B 4 6
C 2 7
D 6 9
E 1 2

First Come First Served (FCFS) Rule
Job sequence Processing time (days)
Due date(days hence)
Flow time (days)
A 3 5 0+3 = 3
B 4 6 3 + 4=7
C 2 7 7+2=9
D 6 9 9+6=15
E 1 2 15+1=16
TOTAL FLOW TIME = 3+7+9+15+16=50 DAYSMEAN FLOW TIME = 50/5 = 10 DAYS
Comparing the due date of each job, with its flow time, we observe that only job A will be on timeJobs B, C, D and E will be late by 1, 2,6 and 14 days respectivelyOn average, a job will be late by (0+1+2+6+14)/5=4.6 days

Shortest Processing Time (SPT Rule)
Job sequence Processing time (days)
Due date(days hence)
Flow time (days)
E 1 2 0+1 = 1
C 2 7 1 +2 =3
A 3 5 3 + 3=6
B 4 6 6+4 = 10
D 6 9 10+6=16
TOTAL FLOW TIME = 1+3+6+10+16 =36 DAYSMEAN FLOW TIME = 36/5 = 7.2 DAYS
SPT results in a lower average flow time than FCFS rule, in addition, Job C and E will be ready before the due date, and job A is late by only one day.On average a job will be late by (0+0+1+4+7)/5=2.4 days

Scheduling n jobs on two machines
• Referred to as Johnson’s rule• Objective is to minimize the flow time from the
beginning of the first job until the finish of the last• It consists of the following steps:
– List the operation time for each job on both the machines– Select the shortest operation time– If the shortest time is for the first machine, do the job first, if
it is for the second machine, do the job last. In case of a tie, do the job on the first machine
– Repeat the above two steps for each remaining job until the schedule is complete

Job Operation time on machine 1 Operation time on machine 2
A 3 2
B 6 8
C 5 6
D 7 4
1 2 3 4
A
Step 2 and 3: Select the shortest operationJob A is shortest on Machine 2Hence job A is assigned first and scheduled lastOnce assigned it is not available further
Ist Assignment
Scheduling n jobs on two machines - Example

Job Operation time on machine 1 Operation time on machine 2
A 3 2
B 6 8
C 5 6
D 7 4
Step 4: Select the shortest operation among the remaining jobsJob D is shortest and again on Machine 2Hence job D is assigned second to lastOnce assigned it is not available further
1 2 3 4
D A
Scheduling n jobs on two machines - Example

• Step 4: Job C is shortest on machine 1, among the remaining jobs, hence performed first
• The remaining job is B, with the shortest operation time in machine 1
1 2 3 4
C D A
1 2 3 4C B D A
All the jobs are sequenced . The flow time is 25 days
Scheduling n jobs on two machines - Example

Machine 1 Job C Job B Job D Job A Idle but available for other work
Machine 2 Idle Job C Job B Job D Job A
0 5 11 19 25Cumulative time in days
Scheduling n jobs on two machines - Example

Production Activity Control (PAC)
• Also referred as shop-floor control• A system for utilizing data from the shop floor
as well as data processing files to maintain and communicate status information on shop orders and work centers

Functions
• The major functions of PAC are:– Assigning priority of each shop order– Maintaining work-in-process quantity information– Providing actual output data for capacity control
purpose– Providing quantity by location by shop order for
WIP inventory and accounting purpose– Measuring efficiency, utilization, and productivity
of manpower and machine

Gantt Charts
• Smaller job shops and individual departments of large ones employ the Gantt chart to help plan and tract jobs
• It is a type of bar chart that plot tasks against time

Gantt chart representation
Job Monday Tuesday Wed Thurs Fri
A
B
C
D

Tools of PAC
1. The daily dispatch list – which jobs are to be run, there priority and how long each will take
2. Various status and exception reports – includinga. Anticipated delay report made out by the shop plannerb. Scrap reportsc. Rework reportsd. Performance summary reports – giving the number and
percentages of orders completed on schedule, lateness of unfilled orders, volume of output, and so on
e. Shortage list
3. An input/output control report – to monitor the workload capacity relationship for each workstation

Input output control
• It is a major feature of a manufacturing planning and control system
• Its major percept is that the planned work input to a work center should never exceed the planned work output
• When the input exceeds the output, back logs builds at the work center, which in turn increases the lead time estimates for jobs upstream.
• When jobs pile up at the work center, congestion occurs, processing becomes inefficient and the flow of work to downstream work centers becomes sporadic

Input output control report
Work ending 505 512 519 526Planned input 210 210 210 210
Actual input 110 150 140 130
Cumulative deviation
- 100 - 160 - 230 -310
Planned output 210 210 210 210
Actual output 140 120 160 120
Cumulative deviation
- 70 - 160 - 210 -300

• Looking first at the output part of the report, output is far below plan
• It would seem that the serious capacity problem exists for this work center.
• However, a look at the input part of the plan, makes it the serious capacity problem exists at an upstream work center, feeding this work center
• The control process would entail finding the cause of the upstream problems and adjusting capacity and inputs accordingly.
Input output control report

• The basic solution is simple• Either increase capacity at the bottleneck
station or reduce the input to it (input reduction at bottleneck work center)
Input output control report

255
Product Design
Process of Product Design Session 23

256
Organizing for Product Development
Historically – distinct departmentsDuties and responsibilities are definedDifficult to foster forward thinking
A ChampionProduct manager drives the product through
the product development system and related organizations

257
Product Design & Process Selection
Product design – the process of defining all of the companies product characteristics – Product design must support product manufacturability
(the ease with which a product can be made)– Product design defines a product’s characteristics of:
• appearance, • materials, • dimensions,
• tolerances, and• performance
standards.
Process Selection – the development of the process necessary to produce the designed product.

258
Team approachCross functional – representatives from all
disciplines or functionsProduct development teams, design for
manufacturability teams, value engineering teams
Japanese “whole organization” approachNo organizational divisions
Organizing for Product Development

Concurrent Engineering
259

260
The Product Design Process
Idea development: all products begin with an idea whether from:– customers, – competitors or– suppliers
Reverse engineering: buying a competitor’s product

261
Step 1 - Idea Development - Someone thinks of a need and a product/service design to satisfy it: customers, marketing, engineering, competitors, benchmarking, reverse engineering
Step 2 - Product Screening - Every business needs a formal/structured evaluation process: fit with facility and labor skills, size of market, contribution margin, break-even analysis, return on sales
Step 3 – Preliminary Design and Testing - Technical specifications are developed, prototypes built, testing starts
Step 4 – Final Design - Final design based on test results, facility, equipment, material, & labor skills defined, suppliers identified
The Product Design Process

262
• Idea developments selection affects– Product quality– Product cost– Customer satisfaction– Overall manufacturability – the ease with which
the product can be made
The Product Design Process

263
Research-Development-Engineering
RESEARCH(Idea Generation)
DEVELOPMENT(Product Screening
& Testing)
PRODUCT ENGINEERING(Final Design )
MANUFACTURING ENGINEERING
(Product Manufacture )
PLANT ENGINEERING
(Product continuity)

Phase 0 : Planning
Phase 1: Concept development
Phase 2: System level design
Phase 3: Detail Design
Phase 4: Testing and refinement
Phase 5: Production Rampup
Marketing
DesignConsider Product platform and architectureAssess new technologies
Investigate feasibility of product conceptsDevelop industrial design conceptsBuild and test experimental prototypes
Generate alternative product architecturesDefine major subsystems and interfacesRefine industrial design
Define part geometryChoose materialsAssign tolerancesCompete industrial design documentation
Reliability testingLife testingPerformance testingObtain regulatory approvalsImplement design changes
Evaluate early production outputs
Manufacturing
Other functions

265
Product Decisions
• Preliminary Design• Detailed Design
– Functional Design– Form Design– Production Design

266
Preliminary Design
• Transition from concept to reality• Prototypes are developed• Prototypes are tested for performance
characteristics • The process of finding the best design is called
optimization

267
DETAILED DESIGN
1. Functional Design– Market quality level– Materials Selection– Reliability– Maintainability
2. Form Design– Packaging
3. Production Design– Product Simplification– Product Diversification– Standardization– Modularity– Value Analysis

268
1. Functional Design
• Concerned with how the product works ( its performance)
• Management must be concerned with the relationships among market quality level, reliability and cost in deciding the technical specifications

269
1 a. Market Quality Level
• Is related to the market segments the product will serve
• High, moderate or low quality markets• The market quality will determine the material
selection, reliability and thereby the cost• There is a point of diminishing returns where
costs increased beyond a value

270
1 b. Materials Selection
• For a given market quality level• The quality and reliability of the materials
should meet specifications as prescribed by the standards

271
1 c. Reliability
• The life of a product is dependent on its design, the manufacturing quality, the conditions under which it is used
• Reliability refers to a product performing its intended function for a specified period of time (consistency of operation) under given conditions satisfactorily (without failure)
• It is expressed as a number that indicates as a measure of probability
• 0.90 reliability means, that a component will function as intended 90% of the times

272
1 d. Maintainability
• Refers to the ability of a product or system to stay in operating condition with a reasonable amount of effort
• It is expressed as a number that indicates the probability, that when specified maintenance is taken, a failed device will be restored to operable condition in a specified downtime
• Maintainability relates to maintenance costs, frequency of repair, service and operational costs

273
• Average availability = MTBF MTBF + MTTR
MRBF = Operating time / number of failuresMTTR = nonoperating time / number of failures
MTBF = Mean time between failures, or how long on the average the product operates before it fails
MTTR = mean time to repair, or how long on the average it takes to correct a failure
1 d. Maintainability

274
FORM DESIGN
• Relates to the physical appearance or shape of the product
• It is important for consumer goods

275
2 a. Packaging
• Package may be a box, can, bag, tube etc• Packaging is the use of containers, wrapping
materials, decorations and labelling to protect, promote, secure, preserve to increase the utility of the product

276
3. PRODUCTION DESIGN
• Product design take care of function, form and producibility.
• The producibility aspect is looked in to during the production design

277
3 a. Product Simplification
• Determination of optimum number of variety• Too much variety raises costs, too less retard
sales• Elimination of marginal product lines, types
and models• Simplification will reduce design complexity,
and the range of purchased products

278
• Opposite to simplification• Increased product lines and modes• Horizontal diversification• Vertical diversification• Lateral diversification
3 b. Product Diversification

279
Product Design
Design for ManufacturabilitySession 24

280
• To gain uniformity in the characteristics of a product such as shape, size, colour, quantity and performance
• Uniformity in work methods, equipment, machine parts, procedures and processes
• Permits interchangeability of parts and simplifies maintainability of the product
• Inventory is less
3 c. Standardization

281
3 d. Modular Design
Products designed in easily segmented components
Adds flexibility to both production and marketing
Improved ability to satisfy customer requirements

282
• Modularity develops building blocks• The modularity designs, develops and produce
parts in multitude of ways
3 d. Modularity

283
3 e. Value Analysis
Focuses on design improvement during production
Seeks improvements leading either to a better product or a product which can be produced more economically

284
Cost Reduction of a Bracket via Value Engineering

285
Issues for Product Development
Computer-aided design (CAD) Computer-aided manufacturing (CAM) Virtual reality technology Environmentally friendly design

286
Robust Design
Product is designed so that small variations in production or assembly do not adversely affect the product
Typically results in lower cost and higher quality

287
Using computers to design products and prepare engineering documentation
Shorter development cycles, improved accuracy, lower cost
Information and designs can be deployed worldwide
Computer Aided Design (CAD)

288
Computer-Aided Manufacturing (CAM)
Utilizing specialized computers and program to control manufacturing equipment
Often driven by the CAD system (CAD/CAM)

289
1. Product quality2. Shorter design time3. Production cost reductions4. Database availability5. New range of capabilities
Benefits of CAD/CAM

290
Virtual Reality Technology
Computer technology used to develop an interactive, 3-D model of a product from the basic CAD data
Allows people to ‘see’ the finished design before a physical model is built
Very effective in large-scale designs such as plant layout

291
Time-Based Competition
Product life cycles are becoming shorter and the rate of technological change is increasing
Developing new products faster can result in a competitive advantage

292
Product-by-Value Analysis
Lists products in descending order of their individual dollar contribution to the firm
Lists the total annual dollar contribution of the product
Helps management evaluate alternative strategies

293
Product-by-Value Analysis
Individual Contribution ($)
Total Annual Contribution ($)
Love Seat $102 $36,720
Arm Chair $87 $51,765
Foot Stool $12 $6,240
Recliner $136 $51,000
A Furniture Factory

294
Documents for Production
Engineering drawing Bill of Material Assembly drawing Assembly chart Route sheet Work order Engineering change notices (ECNs)

295
Engineering Drawings

296
Bills of Material
BOM for Panel Weldment
NUMBER DESCRIPTION QTY
A 60-71 PANEL WELDM’T 1
A 60-7 LOWER ROLLER ASSM. 1R 60-17 ROLLER 1R 60-428 PIN 1P 60-2 LOCKNUT 1
A 60-72 GUIDE ASSM. REAR 1R 60-57-1 SUPPORT ANGLE 1A 60-4 ROLLER ASSM. 102-50-1150 BOLT 1
A 60-73 GUIDE ASSM. FRONT 1A 60-74 SUPPORT WELDM’T 1R 60-99 WEAR PLATE 102-50-1150 BOLT 1

297
Assembly Drawing
Shows exploded view of product
Details relative locations to show how to assemble the product

Assembly Chart
1
2
3
4
5
6
7
8
9
10
11
R 209 Angle
R 207 Angle
Bolts w/nuts (2)
R 209 Angle
R 207 Angle
Bolt w/nut
R 404 Roller
Lock washer
Part number tag
Box w/packing material
Bolts w/nuts (2)
SA1
SA2
A1
A2
A3
A4
A5
Leftbracket
assembly
Rightbracket
assembly
Poka-yoke inspection
Identifies the point of production where components flow into subassemblies and ultimately into the final product
298

299
Route Sheet
Lists the operations and times required to produce a component
Setup OperationProcess Machine Operations Time Time/Unit
1 Auto Insert 2 Insert Component 1.5 .4 Set 56
2 Manual Insert Component .5 2.3 Insert 1 Set 12C
3 Wave Solder Solder all 1.5 4.1components to board
4 Test 4 Circuit integrity .25 .5test 4GY

300
Work Order
Instructions to produce a given quantity of a particular item, usually to a schedule
Work Order
Item Quantity Start Date Due Date
Production DeliveryDept Location
157C 125 5/2/08 5/4/08
F32 Dept K11

301
Engineering Change Notice (ECN)
A correction or modification to a product’s definition or documentationEngineering drawingsBill of material
Quite common with long product life cycles, long manufacturing lead times, or rapidly changing
technologies

302
Transition to Production
Responsibility must also transition as the product moves through its life cycle Line management takes over from design
Three common approaches to managing transition Project managers Product development teams Integrate product development and manufacturing
organizations

Introduction
• Product decisions determine what will be produced• Process decisions establish how the product will be
produced• Process decisions are concerned with the
transformation of inputs to outputs• The basic factors that affect the selection of a process
are:– The required volume or quantity of the product– The desired quality of the product– The equipment that is available or can be obtained
s303

304
Process Strategies
How to produce a product or provide a service that Meets or exceeds customer requirements Meets cost and managerial goals
Has long term effects on Efficiency and production flexibility Costs and quality

305
Four basic strategies
Process focus Repetitive focus Product focus Mass customization
Within these basic strategies there are many ways they may be implemented
Process Selection Strategies

306
Process Selection
• Product design considerations must include the process
• Intermittent processes:– Processes used to produce a variety of products
with different processing requirements in lower volumes. (such as healthcare facility)
• Repetitive processes:– Processes used to produce one or a few
standardized products in high volume. (such as a cafeteria, or car wash)

307
Product-Process Grid

308
Process Types
• Process types can be:– Project process – make a one-at-a-time product
exactly to customer specifications– Batch process – small quantities of product in
groups or batches based on customer orders or specifications
– Line process – large quantities of a standard product
– Continuous process – very high volumes of a fully standard product
• Process types exist on a continuum

309
Process Selection
One of a kind
Custom Off-the shelf
Commodity
Special Project
Intermittent
Continuous
PRODUCT
PRO
CESS

310
• Impact of Competitive Priorities: Intermittent operations are typically less competitive on cost than repetitive operations.
Linking Product Design & Process Selection

• Organizational Decisions appropriate for different types of operations
311
Linking Product Design & Process Selection: Summary

312
Flowchart for Different Product Strategies at Pizzaria

313
Process Decisions-Vertical Integration & Make or Buy
• A firm’s Make-or-Buy choices should be based on the following considerations:– Strategic impact– Available capacity– Expertise– Quality considerations– Speed– Cost (fixed cost + variable cost)make = Cost (fixed cost +
Variable cost)buy

314
Example 1Item A Item B Item C
Quantity needed 4000 700 12000Total material cost
Rs.600 Rs.10,000 Rs.9000
Total direct labour hours
200 1500 2000
Lowest supplier bid (price per unit)
Rs.0.80 Rs.50.00 Rs.2.00
Should you make or buy the following components?The direct labour cost is estimated as Rs.8.00 per hourThe fixed overhead rate per direct labour hour is Rs.6.00 .The fixed overhead continues even if there is no production

315
Item A
• Total cost to buy = (Rs.0.80 x 4000) =Rs.3200• Total cost to make =Rs.600+(Rs.8.00)200+
(Rs.6.00)200 =Rs.3400• Variable cost to make• = Rs.600+(Rs.8.00)200=Rs.2200• If unused capacity is available it is desirable to
make the item, since the variable cost is much less than the buy price

316
Item B
• Total cost to buy = (Rs.50 x 700) =Rs.35,000• Total cost to make =Rs.10,000+(Rs.8.00)1500+
(Rs.6.00)1500 =Rs.31,000• Variable cost to make• = Rs.10,000+(Rs.8.00)1500 = 22,000
Make alternative is cheaper than buying

317
Item C
• Total cost to buy = (Rs.2 x 12000) =Rs.24,000• Total cost to make =Rs.9,000+(Rs.8.00)2000+
(Rs.6.00)2000 =Rs.37,000• Variable cost to make• = Rs.9,000+(Rs.8.00)2000=Rs.25,000
Buy alternative is cheaper than making

318
Process Performance Metrics
Process performance metrics – defined: Measurement of different process characteristics that tell us how a process is performing– Determining if a process is functioning properly is
required– Determination requires measuring performance

319
Process Performance Metrics

320
Metrics Example: At Zelle’s Dry Cleaning, it takes an average of 3 ½ hours to dry clean & press a shirt, with value-added time estimated at 110 min. Workers are paid for a 7-hour workday but work 5 ½ hr/day, accounting for breaks and lunch. Zelle’s completes 25 shirts per day, while the industry standard is 28 for a comparable facility.
Process Velocity = (Throughput Time)/(Value-added time)= (210 minutes/shirt)/(110 minutes/shirt) = 1.90
Labor Utilization = (Time in Use)/(Time Available)= (5 ½ hr)/(7 hr) = .786 or 78.6%
Efficiency = (Actual Output)/(Standard Output)
= (25 shirts/day)/(28 shirts/day) = .89 or 89%

321
Throughput Time
A basic process performance metric is throughput time.
A lower throughput time means that more products can move through the system.
One goal of process improvement is to reduce throughput time.

322
Changing Processes
Difficult and expensive May mean starting over Process strategy determines
transformation strategy for an extended period
Important to get it right

323
Crossover Charts
Fixed costs
Variable costs
$
High volume, low varietyProcess C
Fixed costs
Variable costs$
RepetitiveProcess B
Fixed costs
Variable costs$
Low volume, high varietyProcess A
Fixed cost Process A Fixed cost
Process BFixed cost Process C
Tota
l cos
t
Total cost
Total cost
V1(2,857) V2 (6,666)
400,000
300,000
200,000
Volume
$