Chapter 7 Process Strategy

8/17/2019 Chapter 7 Process Strategy

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S7 - 1© 2014 Pearson Education, Inc.

Capacity and

ConstraintManagement

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Operations Management, Eleventh EditionPrinciples of Operations Management, Ninth Edition

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! "

P P # E M E N $

! "

P P # E M E N $


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O%tline & Contin%ed

► pplyin& E*pected +onetary alueE+ to Capacity /ecisions

►

pplyin& In$est(ent nalysis toStrate&y-/ri$en In$est(ents


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#earning Ob'ectives

(hen yo% complete this s%pplementyo% sho%ld be able to )

*+ efine capacity-+ etermine desi&n capacity, e##ecti$e

capacity, and utiliation

.+ Perform ottleneck analysis/+ Comp%te reak-e$en


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#earning Ob'ectives

(hen yo% complete this s%pplementyo% sho%ld be able to )

0+ etermine t!e e*pected (onetary$alue o# a capacity decision

1+ Comp%te net present $alue


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Capacity

► "!e t!rou&!put, or t!e nu(er o# unitsa #acility can !old, recei$e, store, orproduce in a period o# ti(e

► /eter(ines#i*ed costs

► /eter(ines i#

de(and 'ille satis#ied

► "!ree ti(e !orions


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Planning Over a $ime Horizon

i&ure S7.1

+odi#y capacity 5se capacity

Inter(ediate-ran&eplannin&a&&re&ateplannin&

Sucontract dd personnel dd e6uip(ent Build or use in$entory dd s!i#ts

S!ort-ran&eplannin&sc!edulin&

Sc!edule osSc!edule personnel llocate (ac!inery8

9on&-ran&e

plannin&

dd #acilities

dd lon& lead ti(e e6uip(ent 8

8 /i##icult to adust capacity as li(ited options e*ist

Options for 2d'%sting Capacity$ime Horizon


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S7 - :© 2014 Pearson Education, Inc.

esign and Effective Capacity

► /esi&n capacity is t!e (a*i(u(t!eoretical output o# a syste(

► ;or(ally e*pressed as a rate► E##ecti$e capacity is t!e capacity a #ir(

e*pects to ac!ie$e &i$en current

operatin& constraints►


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"tilization and Efficiency

"tilization is the percent of designcapacity act%ally achieved

Efficiency is the percent of effective

capacity act%ally achieved

5tiliation > ctual output?/esi&n capacity

E##iciency > ctual output?E##ecti$e capacity


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3a4ery E5ample

ctual production last 'eek > 14:,000 rollsE##ecti$e capacity > 17,000 rolls/esi&n capacity > 1,200 rolls per !our Bakery operates 7 days?'eek, ) - : !our s!i#ts

/esi&n capacity > 7 * ) * : * 1,200 > 201,300 rolls


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3a4ery E5ample




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3a4ery E5ample



5tiliation > 14:,000?201,300 > 7).4@


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S7 - 1)© 2014 Pearson Education, Inc.

3a4ery E5ample



5tiliation > 14:,000?201,300 > 7).4@

E##iciency > 14:,000?17,000 > :4.3@


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3a4ery E5ample



5tiliation > 14:,000?201,300 > 7).4@

E##iciency > 14:,000?17,000 > :4.3@


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3a4ery E5ample

ctual production last 'eek > 14:,000 rollsE##ecti$e capacity > 17,000 rolls/esi&n capacity > 1,200 rolls per !our Bakery operates 7 days?'eek, ) - : !our s!i#tsE##iciency > :4.3@E##iciency o# ne' line > 7@

E*pected E##ecti$e CapacityE##iciency

> 17,000.7 > 1)1,20 rolls


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3a4ery E5ample

ctual production last 'eek > 14:,000 rollsE##ecti$e capacity > 17,000 rolls/esi&n capacity > 1,200 rolls per !our Bakery operates 7 days?'eek, ) - : !our s!i#tsE##iciency > :4.3@E##iciency o# ne' line > 7@

E*pected E##ecti$e CapacityE##iciency

> 17,000.7 > 1)1,20 rolls


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Capacity and !trategy

► Capacity decisions i(pact all 10decisions o# operations (ana&e(ent

as 'ell as ot!er #unctional areas o#t!e or&aniation

► Capacity decisions (ust e

inte&rated into t!e or&aniationAs(ission and strate&y


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S7 - 1:© 2014 Pearson Education, Inc.

Capacity Considerations

1. orecast de(and accurately

2. +atc! tec!nolo&y incre(ents and

sales $olu(e). ind t!e opti(u( operatin& sie

$olu(e

4. Build #or c!an&e


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Economies and iseconomies

of !cale

Econo(ieso# scale

/isecono(ieso# scale

1,)00 s6 #tstore 2,300 s6 #tstore

:,000 s6 #tstore

;u(er o# s6uare #eet in store

1,)00 2,300 :,000

$ e r a & e u n i t c

o s t

-

s a l e s p e r s 6 u a r e # o o t .

i&ure S7.2

© 2014 Pearson Education, Inc.


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Managing emand

► /e(and e*ceeds capacity

► Curtail de(and y raisin& prices, sc!edulin&lon&er lead ti(e

►

9on& ter( solution is to increase capacity► Capacity e*ceeds de(and

► Sti(ulate (arket

► Product c!an&es

► dustin& to seasonal de(ands

► Produce products 'it! co(ple(entaryde(and patterns


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Complementary emand

Patterns

4,000

),000

2,000

1,000

+ + S < ; / + + S < ; /

S a l e s i n u n i t s

"i(e (ont!s

Co(inin& t!et'o de(andpatterns reducest!e $ariation

Sno'(oile(otor sales

et skien&inesales

i&ure S7.)


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$actics for Matching Capacityto emand

1. +akin& sta##in& c!an&es

2. dustin& e6uip(ent

►

Purc!asin& additional (ac!inery► Sellin& or leasin& out e*istin& e6uip(ent

). I(pro$in& processes to increase t!rou&!put

4. %edesi&nin& products to #acilitate (ore t!rou&!put

. ddin& process #le*iility to (eet c!an&in& productpre#erences

3. Closin& #acilities


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!ervice&!ector emand

and Capacity Management► /e(and (ana&e(ent

► ppoint(ent, reser$ations, CS rule

► Capacity(ana&e(ent► ull ti(e,

te(porary,part-ti(esta##


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3ottlenec4 2nalysis and the

$heory of Constraints► Eac! 'ork area can !a$e its o'n uni6ue

capacity

► Capacity analysis deter(ines t!e t!rou&!putcapacity o# 'orkstations in a syste(

► bottlenec4 is a li(itin& #actor or constraint

► ottleneck !as t!e lo'est e##ecti$e capacityin a syste(


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3ottlenec4 2nalysis and the

$heory of Constraints► "!e bottlenec4 time is t!e ti(e o# t!e

slo'est 'orkstation t!e one t!at takes

t!e lon&est in a production syste(► "!e thro%ghp%t time is t!e ti(e it takes

a unit to &o t!rou&! production #ro( startto end

2 (in?unit 4 (in?unit ) (in?unit

B C

i&ure S7.4


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Capacity 2nalysis

► "'o identical sand'ic! lines

► 9ines !a$e t'o 'orkers and t!ree operations

► ll co(pleted sand'ic!es are 'rapped

Drap?/eli$er

)7. sec?sand'ic!


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Capacity2nalysis

Drap?/eli$er

)7. sec

=3 sand'ic!es per!our

► "!rou&!put ti(e is )0 1 20 20 )7.> 122. seconds


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Capacity 2nalysis

► Standard process #or cleanin& teet!

► Cleanin& and e*a(inin& F-rays can !appensi(ultaneously

C!eckout

3 (in?unit

C!eck in

2 (in?unit

/e$elopsF-ray

4 (in?unit : (in?unit

/entist"akesF-ray

2 (in?unit

(in?unit

F-raye*a(

Cleanin&

24 (in?unit


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Capacity2nalysis

► ll possile pat!s (ust e co(pared► Bottleneck is t!e !y&ienist at 24 (inutes

► Gourly capacity is 30?24 > 2. patients► F-ray e*a( pat! is 2 2 4 : 3 > 27

(inutes► Cleanin& pat! is 2 2 4 24 : 3 > 43

(inutes► 9on&est pat! in$ol$es t!e !y&ienist cleanin&

t!e teet!, patient s!ould co(plete in 43(inutes

Chec4o%t

1 min6%nit

Chec4 in

- min6%nit

evelops7&ray

/ min6%nit 8 min6%nit

entist$a4es7&ray

- min6%nit

0 min6%nit

7&raye5am

Cleaning

-/ min6%nit


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S7 - )0© 2014 Pearson Education, Inc.

$heory of Constraints

► i$e-step process #or reco&niin& and(ana&in& li(itations

!tep *) Identi#y t!e constraints

!tep -) /e$elop a plan #or o$erco(in& t!e constraints

!tep .) ocus resources on acco(plis!in& Step 2

!tep /H %educe t!e e##ects o# constraints y o##loadin&

'ork or e*pandin& capaility!tep 0)


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3ottlenec4 Management

1. %elease 'ork orders to t!e syste( at t!epace o# set y t!e ottleneck► /ru(, Bu##er, %ope

2. 9ost ti(e at t!e ottleneck represents lostti(e #or t!e '!ole syste(

). Increasin& t!e capacity o# a non-ottleneckstation is a (ira&e

4. Increasin& t!e capacity o# a ottleneckincreases t!e capacity o# t!e '!ole syste(


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3rea4&Even 2nalysis

► "ec!ni6ue #or e$aluatin& process ande6uip(ent alternati$es

►


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S7 - ))© 2014 Pearson Education, Inc.

3rea4&Even 2nalysis

► i*ed costs are costs t!at continue e$eni# no units are produced

► /epreciation, ta*es, det, (ort&a&e

pay(ents► ariale costs are costs t!at $ary 'it!

t!e $olu(e o# units produced

► 9aor, (aterials, portion o# utilities► Contriution is t!e di##erence et'een

sellin& price and $ariale cost


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3rea4&Even 2nalysis

► %e$enue #unction e&ins at t!e ori&inand proceeds up'ard to t!e ri&!t,increasin& y t!e sellin& price o# eac!

unit► D!ere t!e re$enue #unction crosses

t!e total cost line is t!e reak-e$en

point


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P r o # i t c

o r r i d

o r

9

o s s

c o r r i d

o r

3rea4&Even 2nalysis

"otal re$enue line

"otal cost line

ariale cost

i*ed cost

Break-e$en point"otal cost > "otal re$enue

=00

:00

700

300

00

400

)00

200

100

0 100 200 )00 400 00 300 700 :00 =00 10001100

C o s t i n d o

l l a r s

olu(e units per periodi&ure S7.


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3rea4&Even 2nalysis

► Costs and re$enue are linear#unctions

► Jenerally not t!e case in t!e real'orld

► De actually kno' t!ese costs

► ery di##icult to $eri#y► "i(e $alue o# (oney is o#ten

i&nored

2ss%mptions


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3rea4&Even 2nalysis

BEP x > reak-e$en point inunits

BEP $ > reak-

e$en point indollars

P > price perunit a#ter alldiscounts

x> nu(er o# unitsproduced

TR > total re$enue> Px

F

> #i*ed costsV > $ariale costper unit

TC > total costs > F Vx

TR > TC or

Px > F Vx

3rea4&even point occ%rs when

BEP x > F

P V


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3rea4&Even 2nalysis

BEP x > reak-e$en point inunits

BEP $ > reak-

e$en point indollars

P > price perunit a#ter alldiscounts

x> nu(er o# unitsproduced

TR > total re$enue> Px

F

> #i*ed costsV > $ariale costper unit

TC > total costs > F Vx

BEP $ > BEP x P = P

>

>

F

( P – V )/ P

F

P – V

F

1 – V / P

Pro#it > TR - TC

> Px F Vx

> Px F Vx

> P - V x F


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3rea4&Even E5ample

i*ed costs > K10,000 +aterial > K.7?unit/irect laor > K1.0?unit Sellin& price > K4.00 per unit

BEP K > > F

1 V ? P

K10,000

1 L1.0 .7?4.00M

> > K22,:7.14K10,000

.4)7


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3rea4&Even E5ample

i*ed costs > K10,000 +aterial > K.7?unit/irect laor > K1.0?unit Sellin& price > K4.00 per unit

BEP K > > F

1 V ? P

K10,000

1 L1.0 .7?4.00M

> > K22,:7.14K10,000

.4)7

BEP x > > > ,714

F

P V

K10,000

4.00 1.0 .7


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3rea4&Even E5ample

0,000

40,000

)0,000

20,000

10,000

0 2,000 4,000 3,000 :,000 10,000

/ o l l a r s

5nits

i*ed costs

"otalcosts

%e$enue

Break-e$en

point


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3rea4&Even E5ample

M%ltiprod%ct Case

'!ere V > $ariale cost per unit P > price per unit F > #i*ed costsW > percent eac! product is o# total dollar sales

e*pressed as a deci(ali > eac! product

=

F

1−V i

Pi

÷× W

i( )

∑

Break-e$en

point in dollars BEP K


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M%ltiprod%ct E5ample

i*ed costs > K),000 per (ont!9$EM PR9CE CO!$ 2NN"2# :OREC2!$E !2#E! "N9$!

Sand'ic! K.00 K).00 =,000

/rink 1.0 .0 =,000

Baked potato 2.00 1.00 7,000

* - . / 0 1 ; 8

9$EM PR9CE


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M%ltiprod%ct E5ample

i*ed costs > K),000 per (ont!9$EM PR9CE CO!$ 2NN"2# :OREC2!$E !2#E! "N9$!

Sand'ic! K.00 K).00 =,000

/rink 1.0 .0 =,000

Baked potato 2.00 1.00 7,000

* - . / 0 1 ; 8

9$EM PR9CE


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Red%cing Ris4 with9ncremental Changes

a 9eadin& de(and 'it!incre(ental e*pansion

/

e ( a n d

E*pectedde(and

;e'capacity

d tte(pts to !a$e an a$era&ecapacity 'it! incre(entale*pansion

/ e ( a n d

;e'capacity E*pected

de(and

c 9a&&in& de(and 'it!incre(ental e*pansion

/ e ( a n d

;e'capacityE*pectedde(and

i&ure S7.3

9eadin& de(and 'it! aone-step e*pansion

/

e ( a n d

E*pectedde(and

;e'capacity


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a 9eadin& de(and 'it! incre(entale*pansion

E*pectedde(and

i&ure S7.3

;e'capacity

/ e ( a n d

"i(e years1 2 )


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9eadin& de(and 'it! a one-stepe*pansion

E*pectedde(and

i&ure S7.3

;e'capacity

/ e ( a n d

"i(e years1 2 )


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c 9a&&in& de(and 'it! incre(entale*pansion

E*pectedde(and

/ e ( a n d

"i(e years1 2 )

;e'

capacity

i&ure S7.3


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Red%cing Ris4 with9ncremental Changesd tte(pts to !a$e an a$era&e capacity 'it!

incre(ental e*pansion

E*pectedde(and

;e'capacity

/ e ( a n d

"i(e years1 2 )

i&ure S7.3


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2pplying E5pected Monetary?al%e


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EM? 2pplied to Capacityecision

▶Sout!ern Gospital Supplies capacitye*pansion

E+ lar&e plant > .4K100,000 .3K=0,000> K14,000

E+ (ediu( plant > .4K30,000 .3K10,000> K1:,000

E+ s(all plant > .4K40,000 .3K,000> K1),000

E+ do not!in& > K0


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!trategy&riven 9nvestment

►


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Net Present ?al%e


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Net Present ?al%e


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S7 - © 2014 Pearson Education, Inc.

NP? "sing :actors

P = = FX F

1 i N

'!ere X > a #actor #ro( "ale S7.1 de#ined as > 1?1 i N and F >#uture $alue

Portion o#"ale S7.1

"B9E S7.1 Present alue o# K1

BE2R 1A 8A *A *-A */A

1 .=4) .=23 .=0= .:=) .:77

2 .:=0 .:7 .:23 .7=7 .73=

) .:40 .7=4 .71 .712 .37

4 .7=2 .7) .3:) .3)3 .=2

.747 .3:1 .321 .37 .1=


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Present ?al%e of an 2nn%ity

n annuity is an in$est(ent '!ic!&enerates uni#or( e6ual pay(ents

S > RX

'!ere X > #actor #ro( "ale S7.2

S > present $alue o# a series o# uni#or(

annual receipts

R > receipts t!at are recei$ed e$eryyearo# t!e li#e o# t!e in$est(ent


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Portion o#"ale S7.2

"B9E S7.2 Present alue o# and nnuity o# K1

BE2R 1A 8A *A *-A */A

1 .=4) .=23 .=0= .:=) .:77

2 1.:)) 1.7:) 1.7)3 1.3=0 1.347

) 2.373 2.77 2.4:7 2.402 2.)22

4 ).43 ).)12 ).170 ).0)7 2.=14

4.212 ).==) ).7=1 ).30 ).4))


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▶%i$er %oad +edical Clinic e6uip(ent in$est(ent

K7,000 in receipts per #or years

Interest rate > 3@ro( "ale S7.2 X > 4.212

S > RX S > K7,0004.212 > K2=,4:4


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#imitations

1. In$est(ents 'it! t!e sa(e ;P (ay !a$edi##erent proected li$es and sal$a&e$alues

2. In$est(ents 'it! t!e sa(e ;P (ay !a$edi##erent cas! #lo's

). ssu(es 'e kno' #uture interest rates

4. Pay(ents are not al'ays (ade at t!e endo# a period


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Printed in t!e 5nited States o# (erica.

Chapter 7 Process Strategy

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Transcript of Chapter 7 Process Strategy