SeOperation Analysis Techniques Process Design .docx

Se
Operation
Analysis
Techniques:
Process Design
,Lean
Operations, JIT
Seminar 11
Process Strategy 7
Outline - Continued
Ø Production Technology
Ø Technology in Services
Ø Process Redesign
Harley-Davidson
▶ The only major U.S. motorcycle
company

▶ Emphasizes quality and lean
manufacturing
▶ Materials as Needed (MAN) system
▶ Many variations possible
▶ Tightly scheduled repetitive production
Process Flow Diagram
THE ASSEMBLY LINE
TESTING
28 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
Arrive on a JIT
schedule from a

10-station work
cell in
Milwaukee
Engines and
transmissions
Frame tube
bending
Frame-building
work cells
Frame
machining
Hot-paint
frame painting
Crating
Learning Objectives
When you complete this section of the
seminar you should be able to:
7.1 Describe four process strategies
7.2 Compute crossover points for different
processes
7.3 Use the tools of process analysis
7.4 Describe customer interaction in service
processes
7.5 Identify recent advances in production

technology
Process Strategy
The objective is to create a process
to produce offerings that meet
customer requirements within cost
and other managerial constraints
Process Strategies
Ø How to produce a product or provide a service
that
§ Meets or exceeds customer requirements
§ Meets cost and managerial goals
Ø Has long term effects on
§ Efficiency and production flexibility
§ Costs and quality
Process, Volume, and Variety
Process Focus
projects, job shops
(machine, print,
hospitals,

restaurants)
Arnold Palmer
Hospital
Repetitive
(autos, motorcycles,
home appliances)
Harley-Davidson
Product Focus
(commercial baked goods,
steel, glass, beer)
Frito-Lay
High Variety
one or few units
per run,
(allows
customization)
Changes in
Modules
modest 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
Va
ri
et
y
(f
le
xi
bi
lit
y)

Process Strategies
Four basic strategies
1. Process focus
2. Repetitive focus
3. Product focus
4. Mass customization
Within these basic strategies there are
many ways they may be implemented
Process Focus
Ø Facilities are organized around specific
activities or processes
Ø General purpose equipment and skilled
personnel
Ø High degree of product flexibility
Ø Typically high costs and low equipment
utilization
Ø Product flows may vary considerably making
planning and scheduling a challenge
Process Focus Many inputs
(surgeries, sick patients,

baby deliveries, emergencies)
Many different outputs
(uniquely treated patients)
Many departments and
many routings
Figure 7.2(a)
(low-volume, high-variety,
intermittent processes)
Arnold Palmer Hospital
Repetitive Focus
Ø Facilities often organized as assembly lines
Ø Characterized by modules with parts and
assemblies made previously
Ø Modules may be combined for many output
options
Ø Less flexibility than process-focused facilities
but more efficient
Repetitive
Focus
Raw materials and

module inputs
Modules combined for many
Output options
(many combinations of motorcycles)
Few
modules
(multiple engine models,
wheel modules)
Figure 7.2(b)
(modular)
Harley Davidson
Product Focus
Ø Facilities are organized by product
Ø High volume but low variety of products
Ø Long, continuous production runs enable
efficient processes
Ø Typically high fixed cost but low variable cost
Ø Generally less skilled labor
Product Focus Few inputs
(corn, potatoes, water,
seasoning)

Output variations in size,
shape, and packaging
(3-oz, 5-oz, 24-oz package
labeled for each material)
Figure 7.2(c)
(high-volume, low-variety,
continuous process)
Frito-Lay
Mass Customization
Ø The rapid, low-cost production of goods
and service to satisfy increasingly unique
customer desires
Ø Combines the flexibility of a process focus
with the efficiency of a product focus
Mass Customization
Figure 7.2(b)
(high-volume, high-variety)
Dell Computer
Many parts and
component inputs

Many output versions
(custom PCs and notebooks)
(chips, hard drives,
software, cases)
Many modules
Mass Customization
TABLE 7.1 Mass Customization Provides More Choices Than
Ever
NUMBER OF CHOICES
ITEM 1970s 21ST CENTURY
Vehicle styles 18 1,212
Bicycle types 8 211,000
iPhone mobile game apps 0 1,200,000
Web sites 0 634,000,000
Movie releases per year 267 1551
New book titles 40,530 300,000+
Houston TV channels 5 185
Breakfast cereals 160 340
Items (SKUs) in supermarkets 14,000 150,000
High-definition TVs 0 102
Mass Customization
Ø Imaginative product design
Ø Flexible process design
Ø Tightly controlled inventory management

Ø Tight schedules
Ø Responsive partners in the supply-chain
Comparison of Processes
TABLE 7.2 Comparison of the Characteristics of Four Types of
Processes
PROCESS FOCUS
(LOW-VOLUME,
HIGH-VARIETY
ARNOLD PALMER
HOSPITAL)
REPETITIVE
FOCUS
(MODULAR
HARLEY-
DAVIDSON)
PRODUCT
FOCUS
(HIGH-VOLUME,
LOW-VARIETY
FRITO-LAY)
MASS
CUSTOMIZATION
(HIGH-VOLUME,

HIGH-VARIETY
DELL COMPUTER)
1. Small quantity
and large
variety of
products
1. Long runs, a
standardized
product from
modules
1. Large
quantity and
small variety
of products
1. Large quantity
and large
variety of
products
2. Broadly
skilled
operators
2. Moderately
trained
employees
2. Less broadly
skilled
operators

2. Flexible
operators
Processes
PROCESS FOCUS
(LOW-VOLUME,
HIGH-VARIETY
ARNOLD PALMER
HOSPITAL)
REPETITIVE
FOCUS
(MODULAR
HARLEY-
DAVIDSON)
PRODUCT
FOCUS
(HIGH-VOLUME,
LOW-VARIETY
FRITO-LAY)
MASS
CUSTOMIZATION
(HIGH-VOLUME,

HIGH-VARIETY
DELL COMPUTER)
3. Instructions
for each job
3. Few changes
in the
instructions
3. Standardized
job
instructions
3. Custom orders
requiring many
job instructions
4. High
inventory
4. Low inventory 4. Low
inventory
4. Low inventory
relative to the
value of the
product
Processes

PROCESS FOCUS
(LOW-VOLUME,
HIGH-VARIETY
ARNOLD PALMER
HOSPITAL)
REPETITIVE
FOCUS
(MODULAR
HARLEY-
DAVIDSON)
PRODUCT
FOCUS
(HIGH-VOLUME,
LOW-VARIETY
FRITO-LAY)
MASS
CUSTOMIZATION
(HIGH-VOLUME,
HIGH-VARIETY
DELL COMPUTER)
5. Finished
goods are
made to order
and not
stored

5. Finished
goods are
made to
frequent
forecasts
5. Finished
goods are
made to a
forecast and
stored
5. Finished goods
are build-to-
order (BTO)
6. Scheduling is
complex
6. Scheduling is
routine
6. Scheduling is
routine
6. Sophisticated
scheduling
accommodates
custom orders

Processes
PROCESS FOCUS
(LOW-VOLUME,
HIGH-VARIETY
ARNOLD PALMER
HOSPITAL)
REPETITIVE
FOCUS
(MODULAR
HARLEY-
DAVIDSON)
PRODUCT
FOCUS
(HIGH-VOLUME,
LOW-VARIETY
FRITO-LAY)
MASS
CUSTOMIZATION
(HIGH-VOLUME,
HIGH-VARIETY
DELL COMPUTER)
7. Fixed costs
are low and
variable costs
high

7. Fixed costs
are dependent
on flexibility of
the facility
7. Fixed costs
are high and
variable costs
low
7. Fixed costs
tend to be high
and variable
costs low
Crossover Chart Example
▶ Evaluate three different accounting software
products
▶ Calculate crossover points between software A
and B and between software B and C
TOTAL FIXED COST
DOLLARS REQUIRED PER
ACCOUNTING REPORT
Software A $200,000 $60
Software B $300,000 $25
Software C $400,000 $10

Crossover Chart Example
200,000+ 60( )V1 =300,000+ 25( )V1
35V1 =100,000
V1 =2,857
▶ Software A is most economical from 0 to 2,857 reports
300,000+ 25( )V2 = 400,000+ 10( )V2
15V2 =100,000
V2 =6,666
▶ Software B is most economical from 2,857 to
6,666 reports
Crossover Charts
Fixed costs
Variable
costs$
High volume, low variety
Process C
Fixed costs
Variable
costs$
Repetitive
Process B

Fixed costs
Variable
costs$
Low volume, high variety
Process A
Fixed cost
Process A
Fixed cost
Process B
Fixed cost
Process C
To
ta
l p
ro
ce
ss
A
c
os
ts
Tot
al p

roc
ess
B
cos
ts
Total
proc
ess C
cost
s
V1(2,857) V2 (6,666)
400,000
300,000
200,000
Volume
$
Figure 7.3
Focused Processes
Ø Focus brings efficiency
Ø Focus on depth of product line rather
than breadth

Ø Focus can be
§ Customers
§ Products
§ Service
§ Technology
Selection of Equipment
Ø Decisions can be complex as alternate methods
may be available
Ø Important factors may be
§ Cost
§ Cash flow
§ Market stability
§ Quality
§ Capacity
§ Flexibility
Flexibility
Ø Flexibility is the ability to respond with little
penalty in time, cost, or customer value
Ø May be a competitive advantage
Ø May be difficult and expensive
Ø Without it, change may mean starting over

Process Analysis and Design
Ø Is the process designed to achieve a
competitive advantage?
Ø Does the process eliminate steps that do
not add value?
Ø Does the process maximize customer
value?
Ø Will the process win orders?
Ø Flowchart
§ Shows the movement of materials
§ Harley-Davidson flowchart
Ø Time-Function Mapping
§ Shows flows and time frame
"Baseline" Time-Function Map
Customer
Sales
Production
control
Plant A

Warehouse
Plant B
Transport
12 days 13 days 1 day 4 days 1 day 10 days 1 day 9 day 1 day
52 daysFigure 7.4(a)
Move
Receive
product
P
ro
du
ct
P
ro
du
ct
Extrude
Wait
W
IP
P
ro

du
ct
Move
Wait
W
IP W
IP
Print
Wait
O
rd
er
W
IP
Order
product
Process
order
Wait
O
rd
er

"Target" Time-Function Map
Customer
Sales
Production
control
Plant
Warehouse
Transport
1 day 2 days 1 day 1 day 1 day
6 days
Figure 7.4(b)
Move
Receive
product
P
ro
du
ct
P
ro

du
ct
Extrude
Wait
PrintO
rd
er WIP
P
ro
du
ct
Order
product
Process
order
Wait
O
rd
er
Process Chart
Figure 7.5

▶ Value-Stream Mapping (VSM)
§ Where value is added in the entire production
process, including the supply chain
§ Extends from the customer back to the
suppliers
Value-Stream Mapping
1. Begin with symbols for customer, supplier,
and production to ensure the big picture
2. Enter customer order requirements
3. Calculate the daily production
requirements
4. Enter the outbound shipping requirements
and delivery frequency
5. Determine inbound shipping method and
delivery frequency
6. Add the process steps (i.e., machine,

assemble) in sequence, left to right
7. Add communication methods, add their
frequency, and show the direction with
arrows
8. Add inventory quantities between
every step of the entire flow
9. Determine total working time (value-added
time) and delay (non-value-added time)
I
Figure 7.6
Service Blueprinting
Ø Focuses on the customer and provider
interaction
Ø Defines three levels of interaction
Ø Each level has different management issues
Ø Identifies potential failure points
Service Blueprint
Personal Greeting Service Diagnosis Perform Service Friendly
Close

Level
#3
Level
#1
Level
#2
Figure 7.7
No
Notify
customer
and recommend
an alternative
provider.
(7 min)
Customer arrives
for service.
(3 min)
Warm greeting
and obtain
service request.
(10 sec)
F

Direct customer
to waiting room.
F
Notify
customer the
car is ready.
(3 min)
Customer departs
Customer pays bill.
(4 min)
F
F
Perform
required work.
(varies)
Prepare invoice.
(3 min)F
F
Yes
F
Yes
F
Standard

request.
(3 min)
Determine
specifics.
(5 min)
No
Can
service be
done and does
customer
approve?
(5 min)
Special Considerations for Service
Process Design
Ø Some interaction with customer is
necessary, but this often affects
performance adversely
Ø The better these interactions are
accommodated in the process design, the
more efficient and effective the process
Ø Find the right combination of cost and
customer interaction
Service Factory Service Shop

Degree of Customization
Low High
D
eg
re
e
of
L
ab
or
Low
High
Mass Service Professional Service
Service Process Matrix
Commercial
banking
Private
banking
General-
purpose law firms
Law clinics
Specialized

hospitals
Hospitals
Full-service
stockbroker
Limited-service
stockbroker
Retailing
Boutiques
Warehouse and
catalog stores
Fast-food
restaurants
Fine-dining
restaurants
Airlines
No-frills
airlines
Figure 7.8
Digitized
orthodontics
Traditional
orthodontics

Ø Labor involvement is high
Ø Focus on human resources
Ø Selection and training highly
important
Ø Personalized services
Mass Service and Professional Service
Low High
D
eg
re
e
of
L
ab
or
Low
High
Commercial

banking
Private
banking
General-
purpose law
firms
Law clinics
Specialized
hospitals
Hospitals
Full-service
stockbroker
Limited-service
stockbroker
Retailing
Boutiques
Warehouse and
catalog stores
Fast-food
restaurants Fine-dining restaurants
Airlines
No-frills

airlines
Digital
orthodontics
Traditional
orthodontics
Service Factory and Service Shop
§ Automation of standardized services
§ Restricted offerings
§ Low labor intensity responds well to
process technology and
scheduling
§ Tight control required to
maintain standards
Low High
D
eg
re
e
of
L

ab
or
Low
High
Commercial
banking
Private
banking
General-
purpose law
firms
Law clinics
Specialized
hospitals
Hospitals
Full-service
stockbroker
Limited-service
stockbroker
Retailing

Boutiques
Warehouse and
catalog stores
Fast-food
restaurants Fine-dining restaurants
Airlines
No-frills
airlines
Digital
orthodontics
Traditional
orthodontics
Improving Service Productivity
TABLE 7.3 Techniques for Improving Service Productivity
STRATEGY TECHNIQUE EXAMPLE
Separation Structuring service so
customers must go where
the 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
Postponement Customizing at delivery Customizing vans at
delivery
rather than at production
Focus Restricting the offerings Limited-menu restaurant
Improving Service Productivity
TABLE 7.3 Techniques for Improving Service Productivity
STRATEGY TECHNIQUE EXAMPLE
Modules Modular selection of
service
Modular production
Investment and insurance
selection
Prepackaged food modules
in restaurants
Automation Separating services that
may lend themselves to
some type of 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
Production Technology
1. Machine technology
2. Automatic identification systems (AISs)
3. Process control
4. Vision systems
5. Robots
6. Automated storage and retrieval systems (ASRSs)
7. Automated guided vehicles (AGVs)
8. Flexible manufacturing systems (FMSs)
9. Computer-integrated manufacturing (CIM)
Machine Technology
Ø Increased precision,

productivity, and
flexibility
Ø Reduced environmental impact
Ø Additive manufacturing produces products
by adding material, not removing it
Ø Supports innovative product design,
minimal custom tooling required, minimal
assembly time, low inventory, and reduced
time to market
Computer numerical control (CNC)
Automatic Identification Systems
(AISs) and RFID
Ø Improved data acquisition
Ø Reduced data entry errors
Ø Increased speed
Ø Increased scope
of process
automation
Bar codes and RFID
Process Control
Ø Real-time monitoring and control of processes
§ Sensors collect data

§ Devices read data
on periodic basis
§ Measurements translated into digital signals then
sent to a computer
§ Computer programs analyze the data
§ Resulting output may take numerous forms
Vision Systems
Ø Particular aid to inspection
Ø Consistently accurate
Ø Never bored
Ø Modest cost
Ø Superior to individuals performing the same
tasks
Robots
Ø Perform monotonous or dangerous tasks
Ø Perform tasks
requiring significant
strength or
endurance
Ø Generally enhanced
consistency and
accuracy

Automated Storage and Retrieval
Systems (ASRSs)
Ø Automated placement
and withdrawal of parts
and products
Ø Reduced errors and
labor
Ø Particularly useful in inventory and test
areas of manufacturing firms
Automated Guided Vehicle (AGVs)
Ø Electronically guided
and controlled carts
Ø Used for movement of
products and/or
individuals
Flexible Manufacturing Systems
(FMSs)
Ø Computer controls both the workstation and
the material handling equipment
Ø Enhance flexibility and reduced waste
Ø Can economically produce low volume but

high variety
Ø Reduced changeover time and increased
utilization
Ø Stringent communication requirement between
components
Computer-Integrated Manufacturing
(CIM)
Ø Extend flexible manufacturing
§ Backward 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 7.9

Technology in Services
TABLE 7.4 Examples of Technology's Impact on Services
SERVICE INDUSTRY EXAMPLE
Financial Services Debit cards, electronic funds transfer, ATMs,
Internet stock trading, online banking via cell
phone
Education Online newspapers and journals, interactive
assignments via WebCT, Blackboard, and
smartphones
Utilities and government Automated one-person garbage trucks,
optical
mail scanners, flood-warning systems, meters
that allow homeowners to control energy usage
and costs
Restaurants and foods Wireless orders from waiters to kitchen,
robot
butchering, transponders on cars that track
sales at drive-throughs
Communications Interactive TV, e-books via Kindle
Capacity and
Constraint
Management 7
S
U
P

P
LE
M
E
N
T
Outline
Ø Capacity
Ø Bottleneck Analysis and the Theory of
Constraints
Ø Break-Even Analysis
Ø Reducing Risk with Incremental Changes
Outline - Continued
Ø Applying Expected Monetary Value (EMV)
to Capacity Decisions
Ø Applying Investment Analysis to Strategy-
Driven Investments
Learning Objectives
When you complete this supplement

you should be able to:
S7.1 Define capacity
S7.2 Determine design capacity,
effective capacity, and utilization
S7.3 Perform bottleneck analysis
S7.4 Compute break-even
Learning Objectives
When you complete this supplement
you should be able to:
S7.5 Determine the expected monetary
value of a capacity decision
S7.6 Compute net present value
Capacity
Ø The throughput, or the number of units a
facility can hold, receive, store, or produce in
a period of time
Ø Determines
fixed costs
Ø Determines if
demand will
be satisfied

Ø Three time horizons
Planning Over a Time Horizon
Figure S7.1
Modify capacity Use capacity
Intermediate-
range
planning
(aggregate
planning)
Subcontract Build or use inventory
Add or sell equipment More or improved training
Add or reduce shifts Add or reduce personnel
Short-range
planning
(scheduling)
Schedule jobs
Schedule personnel
Allocate machinery*
Long-range
planning
Design new production processes
Add (or sell existing)
long-lead-time equipment
Acquire or sell facilities
Acquire competitors

*
* Difficult to adjust capacity as limited options exist
Options for Adjusting Capacity
Time Horizon
Design and Effective Capacity
Ø Design capacity is the maximum theoretical
output of a system
§ Normally expressed as a rate
Ø Effective capacity is the capacity a firm expects
to achieve given current operating constraints
§ Often lower than design capacity
TABLE S7.1 Capacity Measurements
MEASURE DEFINITION EXAMPLE
Design capacity Ideal conditions exist
during the time that
the system is
available
Machines at Frito-Lay are designed to
produce 1,000 bags of chips/hr., and the plant
operates 16 hrs./day.
Design Capacity = 1,000 bags/hr. × 16 hrs.

= 16,000 bags/day
Effective capacity Design capacity
minus lost output
because of planned
resource
unavailability (e.g.,
preventive
maintenance,
machine
setups/changeovers,
changes in product
mix, scheduled
breaks)
Frito-Lay loses 3 hours of output per day
(= 0.5 hrs./day on preventive maintenance,
1 hr./day on employee breaks, and 1.5
hrs./day setting up machines for different
products).
Effective Capacity = 16,000 bags/day
– (1,000 bags/hr.)
(3 hrs./day)
= 16,000 bags/day
– 3,000 bags/day
= 13,000 bags/day

Actual output Effective capacity
minus lost output
during unplanned
resource idleness
(e.g., absenteeism,
machine breakdowns,
unavailable parts,
quality problems)
On average, machines at Frito-Lay are not
running 1 hr./day due to late parts and
machine breakdowns.
Actual Output = 13,000 bags/day
– (1,000 bags/hr.)
(1 hr./day)
= 13,000 bags/day
– 1,000 bags/day
= 12,000 bags/day
Utilization and Efficiency
Utilization is the percent of design
capacity actually achieved

Efficiency is the percent of effective
capacity actually achieved
Utilization = Actual output/Design capacity
Efficiency = Actual output/Effective capacity
Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts
Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls
Design
Capacity
Bakery Example
Utilization = 148,000/201,600 = 73.4%
Utilization

Bakery Example
Utilization = 148,000/201,600 = 73.4%
Efficiency = 148,000/175,000 = 84.6%
Efficiency
Bakery Example
Design capacity = 201,600 rolls per line
Efficiency = 84.6%
Design capacity = 201,600 x 2 = 403,200 rolls
Expected output of new line = 130,000 rolls
Design
Capacity
Bakery Example

Efficiency = 84.6%
Effective capacity = 175,000 x 2 = 350,000 rolls
Effective
Capacity
Bakery Example
Efficiency = 84.6%
Actual output = 148,000 + 130,000 = 278,000 rolls
Actual
Output
Bakery Example

Efficiency = 84.6%
Actual output = 148,000 + 130,000 = 278,000 rolls
Utilization = 278,000/403,200 = 68.95%
Efficiency = 278,000/350,000 = 79.43%
Utilization
Efficiency
Capacity and Strategy
Ø Capacity decisions impact all 10 decisions
of operations management as well as other
functional areas of the organization
Ø Capacity decisions must be integrated into
the organization’s mission and strategy
Capacity Considerations
1. Forecast demand accurately
2. Match technology increments and
sales volume

3. Find the optimum operating size
(volume)
4. Build for change
Economies and Diseconomies of Scale
Economies
of scale
Diseconomies
of scale
1,300 sq ft
store 2,600 sq ft
store
8,000 sq ft
store
Number of square feet in store
1,300 2,600 8,000
A
ve
ra
ge
u
ni
t c

os
t
(s
al
es
p
er
s
qu
ar
e
fo
ot
)
Figure S7.2
Copyright © 2017 Pearson Education, Ltd. S7 - 81
Managing Demand
Ø Demand exceeds capacity
▶ Curtail demand by raising prices, scheduling
longer lead times
▶ Long-term solution is to increase capacity

Ø Capacity exceeds demand
▶ Stimulate market
▶ Product changes
Ø Adjusting to seasonal demands
▶ Produce products with complementary
demand patterns
Complementary Demand Patterns
4,000 –
3,000 –
2,000 –
1,000 –
J F M A M J J A S O N D J F M A M J J A S O N D J
S
al
es
in
u
ni
ts
Time (months)

Combining the
two demand
patterns reduces
the variation
Snowmobile
motor sales
Jet ski
engine
sales
Figure S7.3
Tactics for Matching Capacity to
Demand
1. Making staffing changes
2. Adjusting equipment
▶ Purchasing additional machinery
▶ Selling or leasing out existing equipment
3. Improving processes to increase throughput
4. Redesigning products to facilitate more throughput
5. Adding process flexibility to meet changing product
preferences
6. Closing facilities
Service-Sector Demand and
Capacity Management

Ø Demand management
▶ Appointment, reservations, FCFS rule
Ø Capacity
management
▶ Full time,
temporary,
part-time
staff
Bottleneck Analysis and the Theory
of Constraints
Ø Each work area can have its own unique
capacity
Ø Capacity analysis determines the throughput
capacity of workstations in a system
Ø A bottleneck is a limiting factor or constraint
Ø A bottleneck has the lowest effective capacity
in a system
Ø The time to produce a unit or a specified
batch size is the process time
Bottleneck Analysis and the Theory
of Constraints

Ø The bottleneck time is the time of the
slowest workstation (the one that takes
the longest) in a production system
Ø The throughput time is the time it takes a
unit to go through production from start to
end, with no waiting
2 min/unit 4 min/unit 3 min/unit
A B C
Figure S7.4
Capacity Analysis
Ø Two identical sandwich lines
Ø Lines have two workers and three operations
Ø All completed sandwiches are wrapped
Wrap/
Deliver
37.5 sec/sandwich
Order
30 sec/sandwich
Bread Fill
15 sec/sandwich 20 sec/sandwich 40 sec/sandwich
Bread Fill Toaster

15 sec/sandwich 20 sec/sandwich
Toaster
40 sec/sandwich
First assembly line
Second assembly line
Capacity
Analysis
Ø The two lines are identical, so parallel
processing can occur
Ø At 40 seconds, the toaster has the longest
processing time and is the bottleneck for
each line
Ø At 40 seconds for two sandwiches, the
bottleneck time of the combined lines = 20
seconds
Ø At 37.5 seconds, wrapping and delivery is
the bottleneck for the entire operation
Wrap
37.5 sec
Order

30 sec
Bread Fill
15 sec 20 sec
40 sec
Bread Fill
Toaster
15 sec 20 sec
Toaster
40 sec
Capacity
Analysis
Ø Capacity per hour is 3,600 seconds/37.5
seconds/sandwich = 96 sandwiches per
hour
Ø Throughput time is 30 + 15 + 20 + 40 + 37.5
= 142.5 seconds
Wrap
37.5 sec
Order

30 sec
Bread Fill
15 sec 20 sec
40 sec
Bread Fill
Toaster
15 sec 20 sec
Toaster
40 sec
Capacity Analysis
Ø Standard process for cleaning teeth
Ø Cleaning and examining X-rays can happen
simultaneously
Check
out
6 min/unit
Check in
2 min/unit

Develops
X-ray
4 min/unit 8 min/unit
DentistTakesX-ray
2 min/unit
5 min/unit
X-ray
exam
Hygienist
cleaning
24 min/unit
Capacity
Analysis
▶ All possible paths must be compared
▶ Bottleneck is the hygienist at 24 minutes
▶ Hourly capacity is 60/24 = 2.5 patients
▶ X-ray exam path is 2 + 2 + 4 + 5 + 8 + 6 = 27 minutes
▶ Cleaning path is 2 + 2 + 4 + 24 + 8 + 6 = 46 minutes
▶ Longest path involves the hygienist cleaning the
teeth, patient should complete in 46 minutes

Check
out
6 min/unit
Check
in
2 min/unit
Develops
X-ray
4 min/unit 8 min/unit
DentistTakesX-ray
2 min/unit
5 min/unit
X-ray
exam
Hygienist
cleaning
24 min/unit
Theory of Constraints
▶ Five-step process for recognizing and
managing limitations
Step 1: Identify the constraints

Step 2: Develop a plan for overcoming the constraints
Step 3: Focus resources on accomplishing Step 2
Step 4: Reduce the effects of constraints by offloading
work or expanding capability
Step 5: Once overcome, go back to Step 1 and find
new constraints
Bottleneck Management
1. Release work orders to the system at the
pace of set by the bottleneck’s capacity
▶ Drum, Buffer, Rope
2. Lost time at the bottleneck represents lost
capacity for the whole system
3. Increasing the capacity of a nonbottleneck
station is a mirage
4. Increasing the capacity of a bottleneck
increases the capacity of the whole system
Break-Even Analysis
Ø Technique for evaluating process and
equipment alternatives
Ø Objective is to find the point in dollars and
units at which cost equals revenue

Ø Requires estimation of fixed costs, variable
costs, and revenue
Break-Even Analysis
Ø Fixed costs are costs that continue even if no
units are produced
§ Depreciation, taxes, debt, mortgage payments
Ø Variable costs are costs that vary with the
volume of units produced
§ Labor, materials, portion of utilities
§ Contribution is the difference between selling
price and variable cost
Break-Even Analysis
Ø Revenue function begins at the origin and
proceeds upward to the right, increasing by
the selling price of each unit
Ø Where the revenue function crosses the
total cost line is the break-even point
Pro
fit c
orr

ido
r
Lo
ss
co
rrid
or
Break-Even Analysis
Total revenue line
Total cost line
Variable cost
Fixed cost
Break-even point
Total cost = Total revenue
–
900 –
800 –
700 –
600 –
500 –

400 –
300 –
200 –
100 –
| | | | | | | | | | | |
0 100 200 300 400 500 600 700 800 900 1000 1100
C
os
t i
n
do
lla
rs
Volume (units per period)
Figure S7.5
Break-Even Analysis
Ø Costs and revenue are linear functions
§ Generally not the case in the real world
Ø We actually know these costs
§ Very difficult to verify
Ø Time value of money is often ignored

Assumptions
Break-Even Analysis
BEPx = break-even point
in units
BEP$ = break-even point
in dollars
P = price per unit
(after all
discounts)
x = number of units
produced
TR = total revenue = Px
F = fixed costs
V = variable cost per unit
TC = total costs = F + Vx
TR = TC
or
Px = F + Vx
Break-even point occurs when
BEPx =
F

P – V
Break-Even Analysis
BEPx = break-even point
in units
BEP$ = break-even point
in dollars
P = price per unit
(after all
discounts)
x = number of units
produced
TR = total revenue = Px
F = fixed costs
V = variable cost per unit
TC = total costs = F + Vx
BEP$ = BEPx P = P
=
=
F
(P – V)/P
F
P – V

F
1 – V/P
Profit = TR - TC
= Px – (F + Vx)
= Px – F – Vx
= (P - V)x – F
Break-Even Example
Fixed costs = $10,000 Material = $.75/unit
Direct labor = $1.50/unit Selling price = $4.00 per unit
BEP$ = =
F
1 – (V/P)
$10,000
1 – [(1.50 + .75)/(4.00)]
= = $22,857.14
$10,000
.4375
Break-Even Example
Fixed costs = $10,000 Material = $.75/unit
Direct labor = $1.50/unit Selling price = $4.00 per unit

BEP$ = =
F
1 – (V/P)
$10,000
1 – [(1.50 + .75)/(4.00)]
= = $22,857.14
$10,000
.4375
BEPx = = = 5,714
F
P – V
$10,000
4.00 – (1.50 + .75)
Break-Even Example
50,000 –
40,000 –
30,000 –
20,000 –
10,000 –
| | | | | |

0 2,000 4,000 6,000 8,000 10,000
D
ol
la
rs
Units
Fixed costs
Total
costs
Revenue
Break-even
point
Break-Even Example
Multiproduct Case
where V = variable cost per unit
P = price per unit
F = fixed costs
W = percent each product is of total dollar sales
expressed as a decimal
i = each product
=
F

1−
Vi
Pi
"
#
$
%
&
'× Wi( )
)
*
+
+
,
-
.
.
∑
Break-even
point in dollars
(BEP$)
Multiproduct Example

Fixed costs = $3,000 per month
ITEM
ANNUAL FORECASTED
SALES UNITS PRICE COST
Sandwich 9,000 $5.00 $3.00
Drink 9,000 1.50 .50
Baked potato 7,000 2.00 1.00
1 2 3 4 5 6 7 8 9
ITEM (i)
ANNUAL
FORECASTED
SALES UNITS
SELLING
PRICE (Pi)
VARIABLE
COST (Vi) (Vi/Pi) 1 - (Vi/Pi)
ANNUAL
FORECASTED
SALES $
% OF SALES
(Wi)
WEIGHTED
CONTRIBUTION

(COL 6 X COL 8)
Sandwich 9,000 $5.00 $3.00 .60 .40 $45,000 .621 .248
Drinks 9,000 1.50 0.50 .33 .67 13,500 .186 .125
Baked
potato
7,000
2.00 1.00 .50 .50 14,000 .193 .097
$72,500 1.000 .470
Multiproduct Example
Fixed costs = $3,000 per month
ITEM
ANNUAL FORECASTED
SALES UNITS PRICE COST
Sandwich 9,000 $5.00 $3.00
Drink 9,000 1.50 .50
Baked potato 7,000 2.00 1.00
1 2 3 4 5 6 7 8 9
ITEM (i)
ANNUAL
FORECASTED
SALES UNITS

SELLING
PRICE (P)
VARIABLE
COST (V) (V/P) 1 - (V/P)
ANNUAL
FORECASTED
SALES $ % OF SALES
WEIGHTED
CONTRIBUTION
(COL 5 X COL 7)
Sandwich 9,000 $5.00 $3.00 .60 .40 $45,000 .621 .248
Drinks 9,000 1.50 0.50 .33 .67 13,500 .186 .125
Baked
potato
7,000
2.00 1.00 .50 .50 14,000 .193 .097
$72,500 1.000 .470
= = $76,596
$3,000 x 12
.47
Daily
sales = = $245.50

$76,596
312 days
BEP$ =
F
1−
Vi
Pi
"
#
$
%
&
'× Wi( )
)
*
+
+
,
-
.
.
∑

Reducing Risk with Incremental
Changes
(a) Leading demand with
incremental expansion
D
em
an
d
Expected
demand
New
capacity
(d) Attempts to have an average
capacity with incremental
expansion
D
em
an
d
New
capacity Expected
demand
(c) Lagging demand with

D
em
an
d
New
capacity
Expected
demand
Figure S7.6
(b) Leading demand with a
one-step expansion
D
em
an
d
Expected
demand
New
capacity
Changes
(a) Leading demand with incremental
expansion

Expected
demand
Figure S7.6
New
capacity
D
em
an
d
Time (years)
1 2 3
Changes
(b) Leading demand with a one-step
expansion
Expected
demand
Figure S7.6
New
capacity
D
em

an
d
Time (years)
1 2 3
Changes
(c) Lagging demand with incremental
expansion
Expected
demand
D
em
an
d
Time (years)
1 2 3
New
capacity
Figure S7.6
Changes

(d) Attempts to have an average capacity with
Expected
demand
New
capacity
D
em
an
d
Time (years)
1 2 3
Figure S7.6
Applying Expected Monetary Value
(EMV) and Capacity Decisions
▶ Determine states of nature
§ Future demand
§ Market favorability
▶ Assign probability values to states
of nature to determine expected
value

EMV Applied to Capacity Decision
▶ Southern Hospital Supplies capacity
expansion
EMV (large plant) = (.4)($100,000) + (.6)(–$90,000)
= –$14,000
EMV (medium plant) = (.4)($60,000) + (.6)(–$10,000)
= +$18,000
EMV (small plant) = (.4)($40,000) + (.6)(–$5,000)
= +$13,000
EMV (do nothing) = $0
Strategy-Driven Investments
▶ Operations managers may have to
decide among various financial
options
▶ Analyzing capacity alternatives
should include capital investment,
variable cost, cash flows, and net
present value
Net Present Value (NPV)
where F = future value
P = present value
i = interest rate

N = number of years
P =
F
(1 + i)N
F = P(1 + i)N
In general:
Solving for P:
Net Present Value (NPV)
where F = future value
P = present value
i = interest rate
N = number of years
P =
F
(1 + i)N
F = P(1 + i)N
In general:
Solving for P:
While this works fine,
it is cumbersome for

larger values of N
NPV Using Factors
P = = FX
F
(1 + i)N
where X = a factor from Table S7.2 defined
as = 1/(1 + i)N and F = future
value
Portion of
Table S7.2
TABLE S7.2 Present Value of $1
YEAR 6% 8% 10% 12% 14%
1 .943 .926 .909 .893 .877
2 .890 .857 .826 .797 .769
3 .840 .794 .751 .712 .675
4 .792 .735 .683 .636 .592
5 .747 .681 .621 .567 .519
Present Value of an Annuity
An annuity is an investment that
generates uniform equal payments
S = RX

where X = factor from Table S7.3
S = present value of a series of uniform
annual receipts
R = receipts that are received every year
of the life of the investment
Portion of
Table S7.3
TABLE S7.3 Present Value of and Annuity of $1
YEAR 6% 8% 10% 12% 14%
1 .943 .926 .909 .893 .877
2 1.833 1.783 1.736 1.690 1.647
3 2.673 2.577 2.487 2.402 2.322
4 3.465 3.312 3.170 3.037 2.914
5 4.212 3.993 3.791 3.605 3.433
▶ River Road Medical Clinic equipment investment
$7,000 in receipts per year for 5 years
Interest rate = 6%
From Table S7.3
X = 4.212

S = RX
S = $7,000(4.212) = $29,484
Limitations
1. Investments with the same NPV may have
different projected lives and salvage
values
2. Investments with the same NPV may have
different cash flows
3. Assumes we know future interest rates
4. Payments are not always made at the end
of a period
Lean Operations 16
Outline
Ø Global Company Profile:
Toyota Motor Corporation
Ø Lean Operations
Ø Lean and Just-in-Time
Ø Lean and the Toyota Production System
Ø Lean Organizations
Ø Lean in Services

▶ One of the largest vehicle
manufacturers in the world with annual
sales of over 9 million vehicles
▶ Success due to two techniques, JIT and
TPS
▶ Continual problem solving is central to
JIT
▶ Eliminating excess inventory makes
problems immediately evident
▶ Central to TPS is employee learning and
a continuing effort to produce products
under ideal conditions
▶ Respect for people is fundamental
▶ Small building but high levels of
production
▶ Subassemblies are transferred to the
assembly line on a JIT basis
▶ High quality and low assembly time per
vehicle

TPS Elements
Seminar Learning Objectives
16.1 Define Lean operations
16.2 Define the seven wastes and the
5Ss
16.3 Identify the concerns of suppliers
when moving to supplier
partnerships
16.4 Determine optimal setup time
Seminar Learning Objectives
16.5 Define kanban
16.6 Compute the required number of
kanbans
16.7 Identify six attributes of Lean
organizations

19.8 Explain how Lean applies to
services
Lean Operations
• Lean operations supply the customer
with exactly what the customer wants
when the customer wants it, without
waste, through continuous
improvement
• Driven by “pulling” customer orders
Lean Operations
Ø Just-in-time (JIT) focuses on continuous
forced problem solving
Ø Toyota Production System (TPS)
emphasizes continuous improvement,
respect for people, and standard work
practices in an assembly-line environment
Lean Operations
Ø Encompasses both JIT and TPS
Ø Sustains competitive advantage and
increases return to stakeholders

Ø Three fundamental issues
§ Eliminate waste
§ Remove variability
§ Improve throughput
Eliminate Waste
Ø Waste is anything that does not add value
from the customer point of view
Ø Storage, inspection, delay, waiting in
queues, and defective products do not add
value and are 100% waste
Ohno's Seven Wastes
Ø Overproduction
Ø Queues
Ø Transportation
Ø Inventory
Ø Motion
Ø Overprocessing
Ø Defective products
Eliminate Waste
Ø Other resources such as energy, water, and
air are often wasted

Ø Efficient, sustainable production minimizes
inputs, reduces waste
Ø Traditional "housekeeping" has been
expanded to the 5Ss
The 5Ss
Ø Sort/segregate – when in doubt, throw it out
Ø Simplify/straighten – methods analysis tools
Ø Shine/sweep – clean daily
Ø Standardize – remove variations from processes
Ø Sustain/self-discipline – review work and
recognize progress
Ø Sort/segregate – when in doubt, throw it out
Ø Simplify/straighten – methods analysis tools
Ø Shine/sweep – clean daily
Ø Standardize – remove variations from processes
Ø Sustain/self-discipline – review work and
recognize progress
The 5Ss
Two additional Ss
▶ Safety – built in good practices
▶ Support/maintenance – reduce
variability and unplanned downtime

Remove Variability
Ø Variability is any deviation from the optimum
process
Ø Lean systems require managers to reduce
variability caused by both internal and
external factors
Ø Inventory hides variability
Ø Less variability results in less waste
Sources of Variability
Ø Poor processes resulting in improper
quantities, late, or non-conforming units
Ø Inadequate maintenance
Ø Unknown and changing customer
demands
Ø Incomplete or inaccurate drawings,
specifications, or bills of material
Ø Poor processes resulting in improper
quantities, late, or non-conforming units
Ø Inadequate maintenance
Ø Unknown customer demands

Ø Incomplete or inaccurate drawings,
specifications, or bills of material
Sources of Variability
Both JIT an
d inventory
reduction a
re effective
tools in
identifying
causes of v
ariability
Improve Throughput
Ø The rate at which units move through a
process
Ø The time between the arrival of raw materials
and the shipping of the finished order is
called manufacturing cycle time
Ø A pull system increases throughput
Improve Throughput

Ø By pulling material in small lots, inventory
cushions are removed, exposing problems
and emphasizing continual improvement
Ø Manufacturing cycle time is reduced
Ø Push systems dump orders on the
downstream stations regardless of the need
Lean and Just-In-Time
Ø Powerful strategy for improving operations
Ø Materials arrive where they
are needed only when they
are needed
Ø Identifying problems and
driving out waste reduces
costs and variability and
improves throughput
Ø Requires a meaningful
buyer-supplier relationship
JIT and Competitive Advantage
Figure 16.1
JIT and Competitive Advantage

Figure 16.1
WHICH RESULTS IN:
Rapid throughput frees assets
Quality improvement reduces waste
Cost reduction adds pricing flexibility
Variability reduction
Rework reduction
WHICH WINS ORDERS BY:
Faster response to the
customer at lower cost
and higher quality –
A Competitive Advantage
Supplier Partnerships
Ø Supplier partnerships exist when a supplier and
purchaser work together to remove waste and
drive down costs
Ø Four goals of supplier partnerships are:
§ Removal of unnecessary activities
§ Removal of in-plant inventory
§ Removal of in-transit inventory
§ Improved quality and reliability

JIT Partnerships
Figure 16.2
Concerns of Suppliers
Ø Diversification – ties to only one customer
increases risk
Ø Scheduling – don't believe customers can create
a smooth schedule
Ø Lead time – short lead times mean engineering
or specification changes can create problems
Ø Quality – limited by capital budgets, processes,
or technology
Ø Lot sizes – small lot sizes may transfer costs to
suppliers
Lean Layout
▶ Reduce waste due to movement
TABLE 16.1
LEAN LAYOUT TACTICS
Build work cells for families of products
Include a large number operations in a small area
Minimize distance
Design little space for inventory

Improve employee communication
Use poka-yoke devices
Build flexible or movable equipment
Cross-train workers to add flexibility
Distance Reduction
Ø Large lots and long production lines with
single-purpose machinery are being replaced
by smaller flexible cells
Ø Often U-shaped for shorter paths and
improved communication
Ø Often using group technology concepts
Increased Flexibility
Ø Cells designed to be rearranged as volume
or designs change
Ø Applicable in office environments as well as
production settings
Ø Facilitates both product and process
improvement
Impact on Employees
Ø Employees may be cross-trained for flexibility

and efficiency
Ø Improved communications facilitate the
passing on of important information about the
process (poka-yoke functions can help)
Ø With little or no inventory buffer, getting it
right the first time is critical
Reduced Space and Inventory
Ø With reduced space, inventory must be in
very small lots
Ø Units are always moving because there is no
storage
Lean Inventory
Ø Inventory is at the minimum level necessary to
keep operations running
TABLE 16.2
LEAN INVENTORY TACTICS
Use a pull system to move inventory
Reduce lot sizes
Develop just-in-time delivery systems with suppliers
Deliver directly to point of use
Perform to schedule
Reduce setup time
Use group technology

Reduce Variability
Inventory level
Process
downtimeScrap
Setup
time
Late deliveries
Quality
problems
Figure 16.3
Inventory
level
Reduce Variability
Figure 16.3
Process
downtimeScrap
Setup
time
Late deliveries

Quality
problems
Inventory
level
Reduce Variability
Figure 16.3
Process
downtime
removed
No scrap
Setup
time
reduced
No late
deliveries
Quality
problems
removed
Reduce Inventory
Ø Reducing inventory uncovers the "rocks"

Ø Problems are exposed
Ø Ultimately there will
be virtually no
inventory and no
problems
Ø Shingo says "Inventory is evil"
Inventory
Reduce Lot Sizes
Figure 16.4
200 –
100 –
In
ve
nt
or
y
Time
Q2 When average order size = 100
average inventory is 50
Q1 When average order size = 200
average inventory is 100

Reduce Lot Sizes
Ø Ideal situation is to have lot sizes of one pulled
from one process to the next
Ø Often not feasible
Ø Can use EOQ analysis to calculate desired
setup time
Ø Two key changes necessary
§ Improve material handling
§ Reduce setup time
Qp
* =
2DS
H 1−(d / p)"# $%
Setup Time Example
D = Annual demand = 400,000 units
d = Daily demand = 400,000/250 = 1,600 per day
p = Daily production rate = 4,000 units
Qp = EOQ desired = 400
H = Holding cost = $20 per unit
S = Setup cost (to be determined)
Setup time = $2.40/($30/hour) = 0.08 hr = 4.8 minutes

Qp
* =
2DS
H 1−(d / p)"# $%
###########Qp
2 =
2DS
H 1−(d / p)"# $%
S =
Qp
2( ) H( ) 1−d / p( )
2D
=
(400)2(20)(1−1,600 / 4,000)
2(400,000)
=$2.40
Reduce Setup Costs
Ø High setup costs encourage large lot sizes
Ø Reducing setup costs reduces lot size and
reduces average inventory
Ø Setup time can be reduced through
preparation prior to shutdown and
changeover

Lower Setup Costs
Figure 16.5
Sum of ordering and
holding costs
Holding cost
Setup cost curve (S1)
T1
S1
T2
S2
C
os
t
Lot size
Setup cost curve (S2)
Reduce Setup Costs
Figure 16.6
90 min —

60 min —
40 min —
25 min —
15 min —
13 min —
—
Use one-touch system to eliminate
adjustments (save 10 minutes)
Training operators and standardizing work
procedures (save 2 minutes)
Step 4
Step 5
Initial Setup Time
Step 2
Move material closer and
improve material handling
(save 20 minutes)
Step 1
Separate setup into preparation and actual setup,
doing as much as possible while the
machine/process is operating
(save 30 minutes)

Step 3
Standardize and
improve tooling
(save 15 minutes)
Repeat cycle until subminute setup
is achieved
Step 6
Lean Scheduling
Ø Schedules must be communicated inside
and outside the organization
Ø Level schedules
§ Process frequent small batches
§ Freezing the schedule helps stability
Ø Kanban
§ Signals used in a pull system
Lean Scheduling
Ø Better scheduling improves performance
TABLE 16.3
LEAN SCHEDULING TACTICS
Make level schedules
Use kanbans

Communicate schedules to suppliers
Freeze part of the schedule
Perform to schedule
Seek one-piece-make and one-piece-move
Eliminate waste
Produce in small lots
Make each operation produce a perfect part
Level Schedules
Ø Process frequent small batches rather than a
few large batches
Ø Make and move small lots so the level
schedule is economical
Ø Freezing the schedule closest to the due
dates can improve performance
Scheduling Small Lots
A B CA AAB B B B B C
JIT Level Material-Use Approach
A CA AA B B B B B C CB B B BA A
Large-Lot Approach
Time
Figure 16.7

Kanban
Ø Kanban is the Japanese word for card
Ø The card is an authorization for the next
container of material to be produced
Ø A sequence of kanbans
pulls material through
the process
Ø Many different sorts of
signals are used, but
the system is still called
a kanban
Signal marker hanging on post
for part Z405 shows that
production should start for that
part. The post is located so that
workers in normal locations can
easily see it.
Signal marker on stack of boxes
Part numbers mark location of
specific part
Kanban
Figure 16.8

Kanban
Ø When there is visual contact
– The user removes a standard-size container
of parts from a small storage area, as shown
in Figure 16.8.
– The signal at the storage area is seen by the
producing department as authorization to
replenish the using department or storage
area. Because there is an optimum lot size,
the producing department may make several
containers at a time.
Kanban
Kanban
Kanban
Final
assembly
Work
cell
Kanban
Material/Parts
Supplier Finished goods
Customer
order

Kanban
Ø When the producer and user are not in visual
contact, a card can be used; otherwise, a light or
flag or empty spot on the floor may be adequate
Ø Usually each card controls a specific quantity of
parts although multiple card systems may be
used if there are several components or if the lot
size is different from the move size
Kanban
Ø Kanban cards provide a direct control and
limit on the amount of work-in-process
between cells
Ø A complicating factor in a manufacturing firm
is the time needed for actual manufacturing
(production) to take place
The Number of Kanban Cards
or Containers
Ø Need to know the lead time needed to
produce a container of parts
Ø Need to know the amount of safety stock
needed

Number of kanbans
(containers)
Demand during Safety
lead time + stock
Size of container=
Number of Kanbans Example
Daily demand = 500 cakes
Production lead time = 2 days
(Wait time +
Material handling time +
Processing time)
Safety stock = 1/2 day
Container size = 250 cakes
Demand during lead time = 2 days x 500 cakes = 1,000
Safety stock = ½ x Daily demand = 250
Number of kanbans = = 5
1,000 + 250
250
Advantages of Kanban
Ø Small containers require tight schedules, smooth
operations, little variability
Ø Shortages create an immediate impact
Ø Places emphasis on meeting schedules,

reducing lead time and setups, and economic
material handling
Ø Standardized containers reduce weight, disposal
costs, wasted space, and labor
Lean Quality
Ø Strong relationship
§ Lean cuts the cost of obtaining good quality
because Lean exposes poor quality
§ Because lead times are shorter, quality
problems are exposed sooner
§ Better quality means fewer buffers and allows
simpler Lean systems to be used
Lean Quality Tactics
TABLE 16.4
LEAN QUALITY TACTICS
Use statistical process control
Empower employees
Build fail-safe methods (poka-yoke, checklists, etc.)
Expose poor quality with small lots
Provide immediate feedback

Toyota Production System
Ø Continuous improvement
§ Build an organizational culture and value system
that stresses improvement of all processes,
kaizen
§ Part of everyone’s job
Ø Respect for people
§ People are treated as
knowledge workers
§ Engage mental and
physical capabilities
§ Empower employees
Ø Processes and standard work practice
§ Work shall be completely specified as to content,
sequence, timing, and outcome
§ Internal and external customer-supplier
connections are direct
§ Material and service flows must be simple and
directly linked to the people or machinery
involved

§ Process improvement must be made in
accordance with the scientific method at the
lowest possible level of the organization
Ø Processes and standard work practice
§ Stopping production because of a defect is
called jidoka
§ Dual focus
▶ Education and training of employees
▶ Responsiveness of the system to problems
Ø Result is continuous improvement
Lean Organizations
Ø Understanding the customer and their
expectations
Ø Functional areas communicate and
collaborate to make sure customer
expectations are met
Ø Implement the tools of Lean throughout the
organization
Building a Lean Organization

Ø Transitioning to a Lean system can be difficult
Ø Build a culture of continual improvement
Ø Open communication
Ø Demonstrated respect for people
Ø Gemba walks to see work being performed
Building a Lean Organization
Ø Lean systems tend to have the following
attributes
§ Respect and develop employees
§ Empower employees
§ Develop worker flexibility
§ Develop collaborative partnerships with suppliers
§ Eliminate waste by performing only value-added
activities
Lean Sustainability
Ø Two sides of the same coin
Ø Maximize resource use and economic
efficiency
Ø Focus on issues outside the immediate firm
Ø Driving out waste is the common ground
Lean in Services
Ø The Lean techniques

used in manufacturing
are used in services
§ Suppliers
§ Layouts
§ Inventory
§ Scheduling
Round 1Seminar Case Seminar 1 Cases UBER
TECHNOLOGIES, INC. Seminar 1 Cases FRITO-LAY:
OPERATIONS MANAGEMENT IN
MANUFACTURINGSeminar 2 Cases RAPID-LUBESeminar 2
Cases STRATEGY AT REGAL MARINESeminar 2 Cases
HARD ROCK CAFE’S GLOBAL STRATEGYSeminar 2 Cases
OUTSOURCING OFFSHORE AT DARDENSeminar 3
CasesDARDEN’S GLOBAL SUPPLY CHAINSSeminar 3
CasesSUPPLY CHAIN MANAGEMENT AT REGAL
MARINESeminar 3 CasesARNOLD PALMER HOSPITAL’S
SUPPLY CHAINSeminar 4 & 5 CasesPROJECT
MANAGEMENT AT ARNOLD PALMER HOSPITALSeminar 4
& 5 CasesMANAGING HARD ROCK’S ROCKFESTSeminar 6
CasesDE MAR’S PRODUCT STRATEGYSeminar 6
CasesPRODUCT DESIGN AT REGAL MARINESeminar 6
CasesBUILDING SUSTAINABILITY AT THE ORLANDO
MAGIC’S AMWAY CENTERSeminar 6 CasesGREEN
MANUFACTURING AND
SUSTAINABILITY AT FRITO-LAYSeminar 7
CasesSOUTHWESTERN UNIVERSITYSeminar 7 CasesTHE
CULTURE OF QUALITY AT ARNOLD PALM-ER
HOSPITALSeminar 7 CasesQUALITY COUNTS AT ALASKA
AIRLINESSeminar 7 CasesQUALITY AT THE RITZ-
CARLTON HOTELSeminar 7 CasesFRITO-LAY’S QUALITY-
CONTROLLED
POTATO CHIPSSeminar 7 CasesFARM TO FORK: QUALITY
AT DARDEN
RESTAURANTSSeminar 8 CasesREEBOK ROYAL CL

PRODUCTION IN VIETNAMSeminar 8 CasesLAYING OUT
ARNOLD PALMER HOSPITAL’S NEW FACILITYSeminar 8
CasesFACILITY LAYOUT AT WHEELED COACHSeminar 8
CasesTHE “PEOPLE” FOCUS: HUMAN RESOURCES AT
ALASKA AIRLINESSeminar 8 CasesHARD ROCK’S HUMAN
RESOURCE STRATEGY
1

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