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The document discusses various process strategies for production and service operations, highlighting four main strategies: process focus, repetitive focus, product focus, and mass customization. It also outlines key objectives in process design, such as maximizing customer value and evaluating technological advancements that enhance efficiency. Key examples include Harley-Davidson's lean manufacturing practices and Dell's mass customization approach, illustrating how different strategies cater to varying market demands.

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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 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) 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 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) 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 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) 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? Process Analysis and Design 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
Process Analysis and Design ▶ 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 Value-Stream Mapping 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 Value-Stream Mapping 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
Service Process Matrix Ø Labor involvement is high Ø Focus on human resources Ø Selection and training highly important Ø Personalized services Mass Service and Professional Service Service Factory Service Shop Degree of Customization Low High D eg re e of L ab or Low High Mass Service Professional Service 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 Process Matrix 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 Service Factory Service Shop Degree of Customization Low High D eg re e of L
ab or Low High Mass Service Professional Service 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 Design and Effective 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 Design and Effective Capacity TABLE S7.1 Capacity Measurements MEASURE DEFINITION EXAMPLE 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
Design and Effective Capacity TABLE S7.1 Capacity Measurements MEASURE DEFINITION EXAMPLE 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 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 Utilization = 148,000/201,600 = 73.4% Utilization
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 Utilization = 148,000/201,600 = 73.4% Efficiency = 148,000/175,000 = 84.6% Efficiency Bakery Example Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls 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 Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls 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 Effective capacity = 175,000 x 2 = 350,000 rolls Effective Capacity Bakery Example Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 201,600 rolls per line Efficiency = 84.6% Design capacity = 201,600 x 2 = 403,200 rolls Effective capacity = 175,000 x 2 = 350,000 rolls Expected output of new line = 130,000 rolls Actual output = 148,000 + 130,000 = 278,000 rolls Actual Output Bakery Example Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls Design capacity = 201,600 rolls per line Efficiency = 84.6% Design capacity = 201,600 x 2 = 403,200 rolls Effective capacity = 175,000 x 2 = 350,000 rolls Actual output = 148,000 + 130,000 = 278,000 rolls Utilization = 278,000/403,200 = 68.95% Efficiency = 278,000/350,000 = 79.43% Expected output of new line = 130,000 rolls 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 incremental expansion
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 Reducing Risk with Incremental Changes (a) Leading demand with incremental expansion
Expected demand Figure S7.6 New capacity D em an d Time (years) 1 2 3 Reducing Risk with Incremental 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 Reducing Risk with Incremental Changes (c) Lagging demand with incremental expansion Expected demand D em an d Time (years) 1 2 3 New capacity Figure S7.6 Reducing Risk with Incremental Changes
(d) Attempts to have an average capacity with incremental expansion 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 Present Value of an Annuity 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 Present Value of an Annuity ▶ 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
Toyota Motor Corporation ▶ 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 Toyota Motor Corporation ▶ 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 When you complete this section of the seminar you should be able to: 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 When you complete this section of the seminar you should be able to: 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 Toyota Production System 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 Toyota Production System 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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SeOperation Analysis Techniques Process Design .docx

  • 1.
    Se Operation Analysis Techniques: Process Design ,Lean Operations, JIT Seminar11 Process Strategy 7 Outline - Continued Ø Production Technology Ø Technology in Services Ø Process Redesign Harley-Davidson ▶ The only major U.S. motorcycle company
  • 2.
    ▶ Emphasizes qualityand 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
  • 3.
    10-station work cell in Milwaukee Enginesand 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
  • 4.
    technology Process Strategy The objectiveis 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,
  • 5.
    restaurants) Arnold Palmer Hospital Repetitive (autos, motorcycles, homeappliances) 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
  • 6.
    (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)
  • 7.
    Process Strategies Four basicstrategies 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,
  • 8.
    baby deliveries, emergencies) Manydifferent 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
  • 9.
    module inputs Modules combinedfor 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)
  • 10.
    Output variations insize, 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
  • 11.
    Many output versions (customPCs 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
  • 12.
    Ø Tight schedules ØResponsive 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,
  • 13.
    HIGH-VARIETY DELL COMPUTER) 1. Smallquantity 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
  • 14.
    2. Flexible operators Comparison ofProcesses 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,
  • 15.
    HIGH-VARIETY DELL COMPUTER) 3. Instructions foreach 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 Comparison of Processes TABLE 7.2 Comparison of the Characteristics of Four Types of Processes
  • 16.
  • 17.
    5. Finished goods are madeto 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 Comparison of Processes TABLE 7.2 Comparison of the Characteristics of Four Types of
  • 18.
  • 19.
    7. Fixed costs aredependent 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 $10
  • 20.
    Crossover Chart Example 200,000+60( )V1 =300,000+ 25( )V1 35V1 =100,000 V1 =2,857 ▶ Software A is most economical from 0 to 2,857 reports 300,000+ 25( )V2 = 400,000+ 10( )V2 15V2 =100,000 V2 =6,666 ▶ Software B is most economical from 2,857 to 6,666 reports Crossover Charts Fixed costs Variable costs$ High volume, low variety Process C Fixed costs Variable costs$ Repetitive Process B
  • 21.
    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
  • 22.
    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
  • 23.
    Ø Focus canbe § 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
  • 24.
    Process Analysis andDesign 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? Process Analysis and Design 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
  • 25.
    Warehouse Plant B Transport 12 days13 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
  • 26.
  • 27.
    "Target" Time-Function Map Customer Sales Production control Plant Warehouse Transport 1day 2 days 1 day 1 day 1 day 6 days Figure 7.4(b) Move Receive product P ro du ct P ro
  • 28.
  • 29.
    Process Analysis andDesign ▶ 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 Value-Stream Mapping 6. Add the process steps (i.e., machine,
  • 30.
    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 Value-Stream Mapping 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
  • 31.
    Level #3 Level #1 Level #2 Figure 7.7 No Notify customer and recommend analternative provider. (7 min) Customer arrives for service. (3 min) Warm greeting and obtain service request. (10 sec) F
  • 32.
    Direct customer to waitingroom. 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
  • 33.
    request. (3 min) Determine specifics. (5 min) No Can servicebe 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
  • 34.
    Degree of Customization LowHigh 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
  • 35.
  • 36.
    Service Process Matrix ØLabor involvement is high Ø Focus on human resources Ø Selection and training highly important Ø Personalized services Mass Service and Professional Service Service Factory Service Shop Degree of Customization Low High D eg re e of L ab or Low High Mass Service Professional Service Commercial
  • 37.
  • 38.
    airlines Digital orthodontics Traditional orthodontics Service Process Matrix ServiceFactory 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 Service Factory Service Shop Degree of Customization Low High D eg re e of L
  • 39.
    ab or Low High Mass Service ProfessionalService Commercial banking Private banking General- purpose law firms Law clinics Specialized hospitals Hospitals Full-service stockbroker Limited-service stockbroker Retailing
  • 40.
    Boutiques Warehouse and catalog stores Fast-food restaurantsFine-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
  • 41.
    Self-service Self-service socustomers 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
  • 42.
    Scheduling Precise personnel scheduling Schedulingticket 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,
  • 43.
    productivity, and flexibility Ø Reducedenvironmental 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
  • 44.
    § Devices readdata 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
  • 45.
    Automated Storage andRetrieval 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
  • 46.
    high variety Ø Reducedchangeover 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
  • 47.
    Technology in Services TABLE7.4 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
  • 48.
    P LE M E N T Outline Ø Capacity Ø BottleneckAnalysis 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
  • 49.
    you should beable 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
  • 50.
    Ø Three timehorizons 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
  • 51.
    * * Difficult toadjust 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 Design and Effective 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.
  • 52.
    = 16,000 bags/day Designand Effective Capacity TABLE S7.1 Capacity Measurements MEASURE DEFINITION EXAMPLE 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
  • 53.
    Design and EffectiveCapacity TABLE S7.1 Capacity Measurements MEASURE DEFINITION EXAMPLE 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
  • 54.
    Efficiency is thepercent 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 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 Utilization = 148,000/201,600 = 73.4% Utilization
  • 55.
    Bakery Example Actual productionlast 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 Utilization = 148,000/201,600 = 73.4% Efficiency = 148,000/175,000 = 84.6% Efficiency Bakery Example Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls 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 Actual production last week = 148,000 rolls
  • 56.
    Effective capacity =175,000 rolls 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 Effective capacity = 175,000 x 2 = 350,000 rolls Effective Capacity Bakery Example Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 201,600 rolls per line Efficiency = 84.6% Design capacity = 201,600 x 2 = 403,200 rolls Effective capacity = 175,000 x 2 = 350,000 rolls Expected output of new line = 130,000 rolls Actual output = 148,000 + 130,000 = 278,000 rolls Actual Output Bakery Example Actual production last week = 148,000 rolls
  • 57.
    Effective capacity =175,000 rolls Design capacity = 201,600 rolls per line Efficiency = 84.6% Design capacity = 201,600 x 2 = 403,200 rolls Effective capacity = 175,000 x 2 = 350,000 rolls Actual output = 148,000 + 130,000 = 278,000 rolls Utilization = 278,000/403,200 = 68.95% Efficiency = 278,000/350,000 = 79.43% Expected output of new line = 130,000 rolls 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
  • 58.
    3. Find theoptimum 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
  • 59.
    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
  • 60.
    Ø Capacity exceedsdemand ▶ 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)
  • 61.
    Combining the two demand patternsreduces 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
  • 62.
    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
  • 63.
    Ø The bottlenecktime 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
  • 64.
    15 sec/sandwich 20sec/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
  • 65.
    30 sec Bread Fill 15sec 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
  • 66.
    30 sec Bread Fill 15sec 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
  • 67.
    Develops X-ray 4 min/unit 8min/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
  • 68.
    Check out 6 min/unit Check in 2 min/unit Develops X-ray 4min/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
  • 69.
    Step 2: Developa 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
  • 70.
    Ø Requires estimationof 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
  • 71.
    ido r Lo ss co rrid or Break-Even Analysis Total revenueline Total cost line Variable cost Fixed cost Break-even point Total cost = Total revenue – 900 – 800 – 700 – 600 – 500 –
  • 72.
    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
  • 73.
    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
  • 74.
    P – V Break-EvenAnalysis 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
  • 75.
    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 = $4.00 per unit
  • 76.
    BEP$ = = 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 – | | | | | |
  • 77.
    0 2,000 4,0006,000 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
  • 78.
  • 79.
    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
  • 80.
    (COL 6 XCOL 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
  • 81.
    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
  • 82.
  • 83.
    Reducing Risk withIncremental 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 incremental expansion
  • 84.
    D em an d New capacity Expected demand Figure S7.6 (b) Leadingdemand with a one-step expansion D em an d Expected demand New capacity Reducing Risk with Incremental Changes (a) Leading demand with incremental expansion
  • 85.
    Expected demand Figure S7.6 New capacity D em an d Time (years) 12 3 Reducing Risk with Incremental Changes (b) Leading demand with a one-step expansion Expected demand Figure S7.6 New capacity D em
  • 86.
    an d Time (years) 1 23 Reducing Risk with Incremental Changes (c) Lagging demand with incremental expansion Expected demand D em an d Time (years) 1 2 3 New capacity Figure S7.6 Reducing Risk with Incremental Changes
  • 87.
    (d) Attempts tohave an average capacity with incremental expansion 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
  • 88.
    EMV Applied toCapacity 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
  • 89.
    N = numberof 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
  • 90.
    larger values ofN 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
  • 91.
    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 Present Value of an Annuity 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 Present Value of an Annuity ▶ 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
  • 92.
    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
  • 93.
    Toyota Motor Corporation ▶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 Toyota Motor Corporation ▶ 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
  • 94.
    TPS Elements Seminar LearningObjectives When you complete this section of the seminar you should be able to: 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 When you complete this section of the seminar you should be able to: Seminar Learning Objectives 16.5 Define kanban 16.6 Compute the required number of kanbans 16.7 Identify six attributes of Lean organizations
  • 95.
    19.8 Explain howLean 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
  • 96.
    Ø Three fundamentalissues § 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
  • 97.
    Ø Efficient, sustainableproduction 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
  • 98.
    Remove Variability Ø Variabilityis 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
  • 99.
    Ø Incomplete orinaccurate 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
  • 100.
    Ø By pullingmaterial 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
  • 101.
    Figure 16.1 WHICH RESULTSIN: 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
  • 102.
    JIT Partnerships Figure 16.2 Concernsof 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
  • 103.
    Improve employee communication Usepoka-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
  • 104.
    and efficiency Ø Improvedcommunications 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
  • 105.
    Reduce Variability Inventory level Process downtimeScrap Setup time Latedeliveries Quality problems Figure 16.3 Inventory level Reduce Variability Figure 16.3 Process downtimeScrap Setup time Late deliveries
  • 106.
    Quality problems Inventory level Reduce Variability Figure 16.3 Process downtime removed Noscrap Setup time reduced No late deliveries Quality problems removed Reduce Inventory Ø Reducing inventory uncovers the "rocks"
  • 107.
    Ø Problems areexposed 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
  • 108.
    Reduce Lot Sizes ØIdeal 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
  • 109.
    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
  • 110.
    Lower Setup Costs Figure16.5 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 —
  • 111.
    60 min — 40min — 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)
  • 112.
    Step 3 Standardize and improvetooling (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
  • 113.
    Communicate schedules tosuppliers 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
  • 114.
    Kanban Ø Kanban isthe 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
  • 115.
    Kanban Ø When thereis 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
  • 116.
    Kanban Ø When theproducer 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
  • 117.
    Number of kanbans (containers) Demandduring 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,
  • 118.
    reducing lead timeand 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
  • 119.
    Toyota Production System ØContinuous 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 Toyota Production System 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
  • 120.
    § Process improvementmust be made in accordance with the scientific method at the lowest possible level of the organization Toyota Production System 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
  • 121.
    Ø Transitioning toa 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
  • 122.
    used in manufacturing areused 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
  • 123.
    PRODUCTION IN VIETNAMSeminar8 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