CHAPTER IV PROCESS SELECTION AND CAPACITY PLANNING 5252021

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CHAPTER IV PROCESS SELECTION AND CAPACITY PLANNING 5/25/2021 1

CHAPTER IV PROCESS SELECTION AND CAPACITY PLANNING 5/25/2021 1

Introduction process is any part of an organization that takes inputs and transforms them

Introduction process is any part of an organization that takes inputs and transforms them into outputs that, it is hoped, are of greater value to the organization than the original inputs. All processes convert inputs into outputs. 5/25/2021 2

Cont… 1. Food Process . Inputs Process Output Raw vegetables Cleaning Metal sheets Making

Cont… 1. Food Process . Inputs Process Output Raw vegetables Cleaning Metal sheets Making cans Water Cutting Energey Cooking Labor Packing Building Labeling Canned vegetables Cooking equipments 5/25/2021 3

Cont… 1. Hospital Process Inputs Process Doctors and Nurses Examination Hospital Surgery Output Medical

Cont… 1. Hospital Process Inputs Process Doctors and Nurses Examination Hospital Surgery Output Medical Supplies Equipments Monitoring Healthy patents patients Laboratories Medication 5/25/2021 Therapy 4

Process Selection Process selection refers to the way an organization chooses to produce its

Process Selection Process selection refers to the way an organization chooses to produce its goods or provide its services. Essentially it involves the choice of technology. Process Selection has major implications for: 5/25/2021 5

Cont… vcapacity planning v layout of facilities v equipment and v design of work

Cont… vcapacity planning v layout of facilities v equipment and v design of work systems. 5/25/2021 6

Cont… A good relation has to prevail among: a) Operations strategy b) New product

Cont… A good relation has to prevail among: a) Operations strategy b) New product development and c) Process selection 5/25/2021 7

Importance of Process Selection Decisions They are strategic in nature demanding special coordination among

Importance of Process Selection Decisions They are strategic in nature demanding special coordination among the functional areas. They greatly affect the business’s ability to realize its mission. They affect it ability to experience a good competitive advantage. They affect a firm’s ability to meet customers’ demand. 5/25/2021 8

Process Selection cont… Process decisions are affected by the operations strategy which addresses the

Process Selection cont… Process decisions are affected by the operations strategy which addresses the issues of: 1. Make or Buy decision The make or buy decision is the perquisite for process selection. v Factors considered in the make or buy decision are: v Available capacity v Available and required expertise v Quality consideration v The nature of demand v Production and Purchase Cost 2. Process Flexibility and 5/25/2021 9

Types of Processes ü ü Ø Ø Ø Continuous Processes Continuous processes are employed

Types of Processes ü ü Ø Ø Ø Continuous Processes Continuous processes are employed when a highly uniform product or service is produced or rendered. Continuous processes are characterized by: Perfect product standardization Very high product volume Specialized purpose or function 5/25/2021 10

cont Ø Expensive process equipments Ø Logical arrangement of the equipments Ø Products are

cont Ø Expensive process equipments Ø Logical arrangement of the equipments Ø Products are continuous rather than discrete. Ø Shut downs and start ups are costy Ø High vulnerable to shutdowns Ø Low personnel skills required Ø Wide span of supervision 5/25/2021 11

Semi continuous Processes Semi continuous processes also called repetitive processes are employed to produce

Semi continuous Processes Semi continuous processes also called repetitive processes are employed to produce outputs that allow for some variety products are highly similar but not identical. Typically, these products are produced in discrete units. High volume products Relatively low skills Relatively greater product variety 5/25/2021 12

Intermittent Processes used to produce a variety of products with different processing requirements in

Intermittent Processes used to produce a variety of products with different processing requirements in lower volumes. Volume is much lower than in continuous and semi continuous systems. The equipments are general purpose. Workers are semi skilled and skilled Span of supervision is narrow 5/25/2021 13

i. Batch Processes are intermittent processes that are used when companies need to produce

i. Batch Processes are intermittent processes that are used when companies need to produce moderate volumes of similar products. Batch manufacturing companies make a batch of one product, then switch over (set up) the equipment and make a batch of another item. 5/25/2021 14

ii. Job Shops are also intermittent processes that are used to produce small lots,

ii. Job Shops are also intermittent processes that are used to produce small lots, low volume products. Equipments involved are general purpose, and the need for skilled workers to operate and supervise such highly flexible equipments is tremendously high. What distinguishes the job shop operation from batch processing is that the job requirements often vary considerably from job to job. 5/25/2021 15

Project Type A project is a highly flexible and low volume type operation. Usually

Project Type A project is a highly flexible and low volume type operation. Usually the item to be produced stays in a fixed place and all the resources come to it. At the end of production, resources leave the place. Some types of service operations may also be called as Projects because they involve a team of people over a period of time and then they leave the project. 5/25/2021 16

Intermittent and Repetitive (continuous and semicontinuous) Operations . 5/25/2021 17

Intermittent and Repetitive (continuous and semicontinuous) Operations . 5/25/2021 17

Underlying Process Relationship between Volume and Standardization Continuum . 5/25/2021 18

Underlying Process Relationship between Volume and Standardization Continuum . 5/25/2021 18

Product Process Matrix 5/25/2021 19

Product Process Matrix 5/25/2021 19

Capacity Planning Defining Capacity § Capacity is the upper limit or ceiling on the

Capacity Planning Defining Capacity § Capacity is the upper limit or ceiling on the load that an operating unit can handle during a specified time period. § The capacity of an operating unit is an important piece of information for planning purposes 5/25/2021 20

Example A department works one eight hour shift, 250 days a year, and has

Example A department works one eight hour shift, 250 days a year, and has using one machine in kind, and detailed information regarding processing requirements and demand size for three different products is presented in the table below: 5/25/2021 21

The question is to determine the number of machines (capacity) that the department has

The question is to determine the number of machines (capacity) that the department has to have to meet the above demand requirements. Product Annual Demand Standard Processing Time per Unit (Hr. ) Needed (Hr. ) #1 400 5. 0 2, 000 #2 300 8. 0 2, 400 #3 700 2. 0 1, 400 Total 5, 800 5/25/2021 22

Basic Questions in CP What kind of capacity is needed? How much is needed?

Basic Questions in CP What kind of capacity is needed? How much is needed? When is it needed? 5/25/2021 23

Steps in the Capacity Planning Process Estimate the capacity of the present facilities Forecast

Steps in the Capacity Planning Process Estimate the capacity of the present facilities Forecast the long range future capacity needs Determine the gap between future capacity requirement and current production capacity Identify and analyze sources of capacity to meet this gap Select from among the alternative sources of capacity 5/25/2021 24

Application of Decision Trees Decision trees require specifying alternatives and various states of nature.

Application of Decision Trees Decision trees require specifying alternatives and various states of nature. For capacity planning situations, the state of nature usually is future demand or market favorability. 5/25/2021 25

Capacity decisions are important in that capacity: 1. 2. 3. 4. 5. determines a

Capacity decisions are important in that capacity: 1. 2. 3. 4. 5. determines a firm’s ability meeting demand determines a firm’s operating costs Determines a firm’s initial investment Involves long term commitment of resources Affects a firm’s competitive advantage 5/25/2021 26

Measuring Capacity Even though defining capacity seems simple enough, there are subtle difficulties in

Measuring Capacity Even though defining capacity seems simple enough, there are subtle difficulties in actually measuring capacity in certain cases. These difficulties arise because of different interpretations of the term capacity and problems with identifying suitable measures for a specific situation. 5/25/2021 27

Types of Capacities Design Capacity Effective Capacity Actual Capacity These different measures of capacity

Types of Capacities Design Capacity Effective Capacity Actual Capacity These different measures of capacity are useful in defining two measures of system effectiveness: 1. efficiency and 2. utilization. 5/25/2021 28

Cont… Efficiency is the ratio of actual output to effec tive capacity. Utilization is

Cont… Efficiency is the ratio of actual output to effec tive capacity. Utilization is the ratio of actual output to design capacity. 5/25/2021 29

Example It is common for managers to focus exclusively on efficiency, but in many

Example It is common for managers to focus exclusively on efficiency, but in many instances, this emphasis can be misleading. Given the information below, compute the efficiency and the utilization of the vehicle repair department: Design capacity = 50 trucks per day Effective capacity = 40 trucks per day Actual output= 36 trucks per day 5/25/2021 30

Developing and Evaluating Capacity Alternatives 1. a. b. c. d. Qualitative Factors Designing flexibility

Developing and Evaluating Capacity Alternatives 1. a. b. c. d. Qualitative Factors Designing flexibility into the system Take a big picture approach capacity changes Prepare to deal with capacity chuncks Identify the optimum operating level 5/25/2021 31

. Economies of Scale Diseconomies of Scale Best (Optimal) Operating 5/25/2021 level 32

. Economies of Scale Diseconomies of Scale Best (Optimal) Operating 5/25/2021 level 32

2. Quantitatively a. Cost-Volume Analysis Cost volume analysis, also called Break Even Analysis, focuses

2. Quantitatively a. Cost-Volume Analysis Cost volume analysis, also called Break Even Analysis, focuses on relationships between cost, revenue, and volume of output. The purpose of cost volume analysis is to estimate the income of an organization under different operating conditions. 5/25/2021 33

Assumptions of Cost-Volume Analysis: One product is involved Everything produced can be sold Variable

Assumptions of Cost-Volume Analysis: One product is involved Everything produced can be sold Variable cost per unit is the same regardless of volume Fixed costs do not change with volume Revenue per unit is constant with volume Revenue per unit exceeds variable cost per unit 5/25/2021 34

Cont… 5/25/2021 35

Cont… 5/25/2021 35

Decision Tree Approach Decision tree is a quantitative technique used for evaluating alternatives and

Decision Tree Approach Decision tree is a quantitative technique used for evaluating alternatives and structures a complex and multiphase decisions by showing: The decisions that must be made (the candidate alternatives available) The sequence in which the decisions must occur The interdependence among the decisions (shows main branches and sub branches Example: 5/25/2021 36

Decision Tree Rafi Café is about to build a new restaurant. An architect has

Decision Tree Rafi Café is about to build a new restaurant. An architect has developed three building designs, each with a different seating capacity. Rafi estimates that the average number of customers per hour will be 80, 100, or 120 with respective probabilities of 0. 4, 0. 2, and 0. 4. The payoff table showing the profits for the three designs is depicted as below: Design Capacity Anticipated Volume of profits for the Average Number of Customers Per Hour of: C 1=80 C 2 =100 C 3 = 120 A $10, 000 $15, 000 B $18, 000 $12, 000 C $6, 000 $16, 000 $21, 000 T o 5/25/2021 t a l 37