Operations management-5

Manufacturing Processes Chapter 7 Case: Made in India

Basic work flow structures
• Project layout

• Work center or Job Shop
• Manufacturing cell • Assembly Line

– Product does not move, Machines move to the product – Similar equipment or functions are grouped together – Designed to perform a specific set of processes. These cells are scheduled to produce as needed. – Processes arranged as progressive steps and discrete parts are made by moving at a controlled rate. – Flow is continuous and undifferentiated materials are produced.

• Continuous process

Process Flow Structures
• Project ( ex. Construction at a site, aero plane)

• Job shop (ex. Copy center making a single copy of a student term paper)
• Batch shop (ex. Copy center making 10,000 copies of an ad piece for a business) • Assembly Line (ex. Automobile manufacturer) • Continuous Flow (ex. Petroleum manufacturer)

Project Process
• A project process is characterized by a high degree of customization and the release of resources, which were assembled at the beginning of the project, as soon as the project is completed. • Firms with project processes market themselves on the basis of their capabilities rather than on the basis of specific products or services. • Projects are usually complex, take a long time for completion and require close coordination between the different functions. • Examples of project processes are organizing a political campaign, developing a new product, conducting a big event, carrying out a consultancy assignment, etc.

Job Process
• In a job process, companies produce a variety of products and services in small quantities and organize resources around the process. • Companies using the job process usually follow a make-toorder strategy and bid for work. • Since products and services are designed as per customer requirements, the level of customization is high. • The volume of each product or service produced is quite low, but higher than produced through the project process. • The requirements of the next customer are usually unknown and the timing of repeat orders is also unpredictable.

Batch Process
• The batch process differs from the job process in terms of volume and variety. • In this type of process, products are produced in volume and range of products produced is narrower. • Companies that use this process follow an assembleto-order strategy. • Some of the critical components of the final product are assembled in advance. • Examples of batch processes are the processing of mortgage loans, scheduling air travel for a group etc.

Line Process
• In a line process, products or services are standardized and produced in high volume and resources are organized around the process. • Materials move linearly from one workstation to other in a fixed sequence. • Each operation is performed again and again, because there is very little variety in the products or services produced. • Companies that use the line process follow a make-to-stock strategy. Finished products are kept ready as inventory and provided to the customer when he places the order. • In the line process, product variety is possible through the addition of standard options to the basic products. • Examples of line processes include the manufacture automobiles, appliances and toys.

Continuous Process
• In a continuous process, production process is standardized with rigid line flow. • The volume of production is high in this type of process. As the name indicates, primary material keeps flowing round-the-clock without interruptions through the facility. T • he process is capital intensive and is therefore operated continuously to maximize utilization and minimize costly shutdowns and start-ups.

Cellular manufacturing
• Cellular manufacturing is a type of group technology in which the total production area is conveniently divided into cells, each cell consisting of a group of machines. • These cells can be used to produce those parts that are needed more often in moderate batch sizes. Within each cell, products are similar to one another, and the flow of parts within the cell is more like a product-focused system. • As similar parts go to a particular cell, the machine changeover times between batches of parts are considerably reduced. This results not only in the increase of production capacity, but also in the reduction of production costs. • As the workers in a particular cell are made to work on a set of similar machinery, their costs of training can be brought down significantly. Moreover, workers gain specialized skills in production, as they are exposed to a smaller variety of machinery. This improves the quality of output.

Product-Process Matrix

Made in India
• Production Volume, Product Variety and flexibility influence process selection. • Process Selection in turn decides capacity planning, facilities, equipment, layout and job and work design. • Production volume can be estimated based on a sales forecast. • Next we select the production technology. • More advanced technologies cost more to install them, but in general they are more efficient and bring down running costs. • So a breakeven analysis.

Product Process Matrix
• Rajesh’s first option was to operate in the lower right corner of the matrix, where he could produce high volumes of meals with a limited variety, much as in an institutional kitchen. • Such a process could produce large volumes of standard items such as baked goods and mashed potatoes prepared with state-of-the-art equipment automated equipment. • Alternatively, he could move to the centre of the matrix, where he could produce more variety and lower his volume of production. Here he would have less automation and use prepared modular components for meals, much as a fastfood restaurant does. • Another option was to move to the upper right corner and produce a high volume of customized meals, but neither Rajesh did not know how to do this with gourmet cuisine.

Break-Even Analysis
• A standard approach to choosing among alternative processes or equipment • Model seeks to determine the point in units produced (and sold) where we will start making profit on the process or equipment • Model seeks to determine the point in units produced (and sold) where total revenue and total cost are equal

Break-Even Analysis Example
• Example: Suppose you want to purchase a new computer that will cost $5,000. It will be used to process written orders from customers who will pay $25 each for the service. The cost of labor, electricity and the form used to place the order is $5 per customer. How many customers will we need to serve to permit the total revenue to break-even with our costs?

• Break-even Demand: = Total fixed costs of process or equip. Unit price to customer – Variable costs =5,000/(25-5) =250 customers

Example 7.1

Made in India: Process and Price alternatives
• He and his friends had managed a peak demand of 25 customers per hour and used a fountain soda machine, a coffee maker and a sandwich maker that could produce made to-order grilled sandwiches. • For one process, which we will call A, he estimates the variable costs to average Rs. 50 per meal and fixed costs Rs. 25,000 per year. • For the second process, B, the variable costs estimated are Rs. 20 per meal and fixed costs Rs. 100,000 per year. • The study also forecasts that in the first year Rajesh can definitely expect to sell 3000 gourmet meals if the price per meal can be reduced to Rs. 60. • The large facility will be set up with 28 tables to deliver a maximum of 28 meals a day 365 days a year whereas the small facility will use • 7 tables to deliver a maximum of 7 meals a day 365 days a year.

Process A or B ? Rs 100 or 60?
Fixed 25000 100000 Variable 50 20 Meals Proc A Proc B Rev_100A Rev_100B Rev_60A Rev_60B 500 50000 110000 0 -60000 -20000 -80000 900 70000 118000 20000 -28000 -16000 -64000 1250 87500 125000 37500 0 -12500 -50000 2500 150000 150000 100000 100000 0 0 3000 175000 160000 125000 140000 5000 20000 5000 275000 200000 225000 300000 25000 100000 7500 400000 250000 350000 500000 50000 200000 10000 525000 300000 475000 700000 75000 300000 12000 625000 340000 575000 860000 95000 380000 Process A and Rs 100 breakeven at a demand of 500 meals per year Process B and Rs 100 breaks even at 1250 At 60 you need 2500, but forecast guarantees 3000

Proc A 290000 260000 230000

Proc B

Rev_100A

Rev_100B

Rev_60A

Rev_60B

200000
170000 140000 110000 80000

50000
20000 -10000 -40000 -70000 -100000 0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000

Decision Tree Extension
• Assume that if Rajesh starts small in the first year, if demand in future continues to be low he will gain a profit of Rs. 80,000. However if demand increases in future he will gain a profit of Rs. 200,000 if he expands but gain a profit of Rs. 150,000 if he does not expand. • If he starts large (28 tables), he makes a profit of 50,000 if the demand is low and a profit of 300000 if the demand is high. • Should Rajesh start with a large expansion from his college stall or expand small initially and build later if demand goes up?

Decision Tree

Cost-Volume Relationship for Different Production Systems
Diversity in product design

job shop 35 production Cellular Manufacturing 30 Product 25 Focused

20

Annual production costs (in Rs. crores)

15

10

5

0

1

2

3

4

5

6

Annual production volume (in lakhs of units)

Manufacturing Process Flow Design
• A process flow design can be defined as a mapping of the specific processes that raw materials, parts, and subassemblies follow as they move through a plant • The most common tools to conduct a process flow design include 1. assembly drawings
– shows component parts

2. assembly charts

– shows how parts go together, their order of assembly, and often overall material flow – Specifies operations and process routing for a part

3. operation and route sheets 4. And Process flow chart

Plug Assembly drawing

Assembly Chart for Plug assembly

Operation and Route Sheet: Plug Assembly

Process Flow Chart
for Plug housing (Partial)

Problem no5
a. Process Flow Diagram
Capacity of assembly line 1 = 140 units/hour X 8 hours/day X 5 days/week = 5,600 units/week. Capacity of drill machines = 3 drill machines X 50 parts/hour X 8 hours/day X 5 days/week = 6,000 units/week. Capacity of final assembly line = 160 units/hour X 8 hours/day X 5 days/week = 6,400 units/week. The capacity of the entire process is 5,600 units per week, with assembly line 1 limiting the overall capacity.

• 5b • Capacity of assembly line 1 = 140 units/hour X 16 hours/day X 5 days/week = 11,200 units/week. • Capacity of drill machines = 4 drilling machines X 50 parts/hour X 8 hours/day X 5 days/week = 8,000 units/week. • Capacity of final assembly line = 160 units/hour X 16 hours/day X 5 days/week = 12,800 units/week. • The capacity of the entire process is 8,000 units per week, with drilling machines limiting the overall capacity. • 5 c. • Capacity of assembly line 1 = 140 units/hour X 16 hours/day X 5 days/week = 11,200 units/week. • Capacity of drill machines = 5 drilling machines X 50 parts/hour X 8 hours/day X 5 days/week = 10,000 units/week. • Capacity of final assembly line = 160 units/hour X 12 hours/day X 5 days/week = 9,600 units/week. • The capacity of the entire process is 9,600 units per week, with final assembly machines limiting the overall capacity.

Cost per unit when output = 8,000 units
Item Calculation Cost Cost of part A $.40 X 8,000 $3,200 Cost of part B $.35 X 8,000 2,800 Cost of part C $.15 X 8,000 1,200 Electricity $.01 X 8,000 80 Assembly 1 labor $.30 X 8,000 2,400 Final assembly labor $.30 X 8,000 2,400 Drilling labor $.15 X 8,000 1,200 Overhead $1,200 per week 1,200 Depreciation $30 per week 30 Total $14,510 Cost per unit = Total cost per week/Number of units produced per week = $14,510/8,000 = $1.81

Cost per unit when output = 9,600 units
Item Calculation Cost Cost of part A $.40 X 9,600 $3,840 Cost of part B $.35 X 9,600 3,360 Cost of part C $.15 X 9,600 1,440 Electricity $.01 X 9,600 96 Assembly 1 labor $.30 X 9,600 2,880 Final assembly labor $.30 X 9,600 2,880 Drilling labor $.15 X 9,600 1,440 Overhead $1,200 per week 1,200 Depreciation $30 per week 30 Total $17,166 Cost per unit = Total cost per week/Number of units produced per week = $17,166/9,600 = $1.79

• Let X = the number of units that each option will produce. • When the company buys the units, the cost is $3.00 per unit (3X). When it manufactures the units, they incur a fixed cost of $120,000 (4 drilling machines at $30,000 a piece) and a per unit cost of $1.81. Therefore, 120,000 + 1.81X is the cost of this option. Set them equal to each other and solve for X to determine the breakeven point. • 3X = 120,000 + 1.81X • X = 100,840 units. • Therefore, it is better to buy the units when you produce less than 100,840, and better to produce them when demand is greater than 100,840 units.

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