1DSC 335, Fall 2009

DSC 335 Operations Management

Instructor: Zhibin YangAssistant Professor

Decision Sciences Department

2DSC 335, Fall 2009

DSC 335 Roadmap

Operations Strategy

Process Management

Process strategy/analysis

Capacity analysis/planning

Quality management

Lean systems

Supply Chain Mgmt.

Supply chain dynamics

Inventory management

Case: Kristen’s Cookie

Case: Blanchard

Littlefield Game 1

Littlefield Game 2

Case: A Pain in Chain

Beer game

Decision Making Tools

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Today: Process Strategy & Analysis

Process strategyFour key process decisionsDecision patterns

Process analysis Process diagramBottleneck analysisPerformance evaluation tools

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Process Strategy

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Process Strategy

Process strategy specifies the pattern of decisions in managing processes so that the processes will achieve competitive priorities

Corporate Strategy

Competitive capabilities

Competitive priorities

Operations Strategy

Process Strategy

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Four Basic Process Decisions

1. Process Structure•Customer-contract position (services)•Product-process position (manufacturing)•Layout

3. Resource Flexibility•Specialized•Enlarged

2. Customer Involvement•Low involvement•High involvement

Effective ProcessDesign

Strategy for Change•Process reengineering•Process improvement

4. Capital Intensity•Low automation•High automation

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1.a Service Process Structure

Examples of service processesBanking; consulting; accounting; realtors; hotels Admission process of a universityEntertainment services at a theme park (Disney,

Universal studio)Boarding services at an airport

Nature of service processes – customer contact

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Customer contact is the extent to which the customer is present, actively involved, and receives personal attention during the service process

Dimensions of customer contact

(cont’d) Customer Contact in Services

Dimension High Contact Low Contact

Physical presence Present Absent

What is processed People Possessions or information

Contact intensity Active, visible Passive, out of sight

Personal attention Personal Impersonal

Method of delivery Face-to-face Regular mail or e-mail

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(cont’d) Service Process Structure Choices

Front office: divisions that interacts with customersHotels: front desk / reception, reservationBanks: investment management

Back office: limited or no interactions with customersHotels and banks: maintenance; room servicesBanks: Risk control, profit and loss controls

Hybrid office: in between the two extremes

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(cont’d) Customer-contact Matrix

Customer-contact matrix describes desirable characteristics of a process in relation to the degree of customer contact

Two dimensions of the customer-contact matrix are

1. The degree of customer contact and customization

2. Process characteristics

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(cont’d)

Process characteristics include

1. Process divergence: extent that the process is customized with the latitude as to how tasks are performed

2. Flow of customers, objects, or information thru the system: line of flexible

High divergence -> flexible flow

Low divergence -> line flow

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(cont’d) Service Process Structuring

Front office

Hybrid office

Back office

Less customer contact and customization

Les

s pr

oces

ses

dive

rgen

ce a

nd m

ore

line

flow

s

(1) (2) (3)High interaction with Some interaction with Low interaction withcustomers, highly customers, standard customers, standardizedcustomized service services with some options services

ProcessCharacteristics

(1)Flexible flows withIndividual processes

(2)Flexible flows withsome dominantpaths, withsome exceptions to how work performed

(3)Line flows, routinework same with all customers

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1.b Manufacturing Process Structure

Service vs. manufacturing processes

Two aspects to control

a) Process structure choice: how resource (machines, labor, etc.) are organized efficiently to accommodate product and process characteristics

b) Inventory strategy

Service processes

Manufacturing processes

Customer contact High Low

Inventory No Yes

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(a) Manufacturer Process Structure

Job shop Use general

resource High flexibility

A finer division1. Job process

2. Small-batch process

3. Large-batch process

4. Line flow

5. Continuous flow

Flow shop Uses specialized

resources

Fixed path

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(cont’d) An Example of Line Flow

2010 Mustang assembly linehttp://www.youtube.com/watch?v=oYXUaTL7uiE

The body flows through a fixed line

Parts being mounted along the line

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(cont’d) An Example of Job Shop

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(cont’d) Examples

Very luxury cars: Rolls Royce

Clothes making: Jeans

Auto Assembly: Nissan sedans

Oil refinery

Heavy equipments: space shuttle, ships, airplanesUse a special process structure – “project”

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(cont’d) Choose Process Structure

Use product-process matrix

1. Product characteristics: volume and product customization (variety) High volume and low customization Low volume and high customization

2. Process characteristics: flow of products/parts Flexible flow and unique sequences for each product Fixed flow, highly repetitive work

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(cont’d) Product-Process Matrix

Continuousprocess

Jobprocess

Lineprocess

Large batchprocess

Small batchprocess

(1) (2) (3) (4)Low-volume Multiple products with low Few major High volume, highproducts, made to moderate volume products, standardization,to customer higher commodity order volume products

ProcessCharacteristics

(1)Customized process, with flexible and unique sequence of tasks

(2)Disconnected line flows, moderately complex work

(3)Connected line, highly repetitive work

(4)Continuous flows

Le

ss

co

mp

lex

ity

, le

ss

div

erg

en

ce

, a

nd

mo

re l

ine

flo

ws

Less customization and higher volume

Batch processes

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(b) Production and Inventory Strategies

Make-to-orderkeep no inventory for finished goodsMake parts, sub-assembly and final assembly

Assemble-to-orderKeep no inventory for finished goods Join sub-assemblies

Make-to-stock

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2. Customer Involvement

Possible disadvantagesCan be disruptiveManaging timing and volume can be challengingQuality measurement can be difficultRequires interpersonal skillsLayouts may have to be revisedMultiple locations may be necessary

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(cont’d)

Possible advantages Increased net value to the customerCan mean better quality, faster delivery, greater

flexibility, and lower costMay reduce product, shipping, and inventory costsMay help coordinate across the supply chainProcesses may be revised to accommodate the

customers’ role

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Discussion

Is it a good business to let customers choose the design of their cars over the Internet?

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3. Resource Flexibility

A flexible workforce can often require higher skills and more training and educationWorker flexibility can help achieve reliable

customer service and alleviate bottlenecksThe type of workforce may be adjusted using

full-time or part-time workers

Resource flexibility helps absorb changes in workloads

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Break-even analysis can be used to determine at what volumes flexible resource/workforce would be necessary

(cont’d) Using Break-even Analysis

Process 2: Special-purpose equipment

Process 1: General-purpose equipment

Break-even quantity

To

tal c

ost

(d

olla

rs)

Units per year (Q)

F2

F1

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Example

Q = Fm – Fb

cb –

cm

BBC is deciding whether to weld bicycle frames manually or to purchase a welding robot. If welded manually, investment costs for equipment are only $10,000. the per-unit cost of manually welding a bicycle frame is $50.00 per frame. On the other hand, a robot capable of performing the same work costs $400,000. robot operating costs including support labor are $20.00 per frame.

At what volume would BBC be indifferent to these alternative methods?

welded manually (Make)

welded by robot (Buy)

Fixed costs $10,000 $400,000

Variable costs $50 $20

=

$10,000 – $400,000

$20 – $50 = 13,000 frames

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4. Capital Intensity – Level of Automation

Automation is one way to address the mix of capital and laborAutomated manufacturing processes substitute capital

equipment for labor

Automation requires high volumes and costs are high

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(cont’d) Fixed v. Flexible Automation

Fixed automation: produces one type of part or product in a fixed sequence large investments, relatively inflexible

Flexible automation: can handle various productsE.g., industrial robots

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(cont’d)

May impact customer contact

May be used in both front and back-office operations

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The process structure chosen should reflect the desired competitive priorities

The process structure has a major impact on customer involvement, resource flexibility, and capital intensity

Strategic Fit of Process Structure

Corporate Strategy

Competitive capabilities

Competitive priorities

Operations Strategy

Process Strategy

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Decision Patterns for Services

Front office

Hybrid office

Back office

Low customer-contact process

• Less complexity, less divergence, more line flows

• Less customer involvement• Less resource flexibility• Capital intensity varies with

volume

High customer-contact process

• More complexity, more divergence, more flexible flows

• More customer involvement• More resource flexibility• Capital intensity varies with

volume

LowHighCustomer contact and customization

Maj

or p

roce

ss d

ecis

ions

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Decision Patterns for Manufacturing

Process strategy affects competitive prioritiesProcesses can be adjusted for the degree of

customization and volume (flexibility)Process flows can be made more of less linear (speed,

cost, quality consistency)

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Competitive Priorities Process Choice

Top-quality, on-time delivery, and flexibility

Job process or small batch process

Low-cost operations, consistent quality, and

delivery speed

Large batch, line, or continuous flow process

(cont’d) Links with Process Structure

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(cont’d) Links w/ Prod’n & Inventory Strategy

Competitive PrioritiesProduction and

Inventory Strategy

Top-quality, on-time delivery, and flexibility Make-to-order

Delivery speed and variety Assemble-to-order

Low-cost operation and delivery speed Make-to-stock

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Continuousprocess

Jobprocess

Lineprocess

Large batchprocess

Small batchprocess

Batch processes

Maj

or

pro

cess

d

ecis

ion

s

Low HighVolume

High-Volume, make-to-stock process

• Less process divergence and more line flows

• Less customer involvement• Less resource flexibility• More capital intensity

Low-Volume, make-to-order process

• More process divergence and more flexible flows

• More customer involvement• More resource flexibility• Less capital intensity

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Process Analysis

Inputs OutputsGoods,

Services Raw material, Customers, etc.

TransformationTransformationProcess

Resources: Labor & Capital

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A Systematic Approach

Evaluate performance

4

Document process

3

Flow diagram

Bottleneck analysis

Data analysis tools

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Key steps in Process Analysis

Step 1: Draw process flow diagram (define process) Determine the inputs and outputs Determine the flow units Determine the tasks and their sequence Determine which resources are used in each task Determine where inventory is kept in the process Record this through a process flow diagram

Step 2: Bottleneck Analysis (performance evaluation) Determine the capacity of each task and of the process Further analysis will be covered later in the course

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Process Example – iTunes Music

Apple sells downloadable songs for $.99 ea.

Process: Apple retains music files and printable material on a server Customers download all material, print labels and burn CDs

themselves

Benefits: No physical inventory, no warehouse, low production costs Always meet demand

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Step 1: Draw a process flow diagram

1. Determine the inputs and outputs

2. Determine the flow units: orders in process

3. Determine the tasks and their sequence

4. Determine resources: computer server

5. Determine where inventory is kept in the process

Orders ReviewOrder

ValidateCreditCard

SendConfirmation

DownloadFinished

Order

WIP

WIPWIP

WIP

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Example - Sales Process of a Consulting Firm

No

Yes

No Yes

No

Yes

Line of visibility

FinishPayment received?

Client billed by accounting,

sales, or consulting

Follow-up by accounting,

sales, or consulting

Approvalby

consulting?

Final invoice created by

accounting, sales, or consulting

Nested Process Client agreement

and service delivery

Is proposal

complete?

Follow-up conversation

between client and sales

Sales and/or consulting

drafts proposal

Sales: Initial conversation

with client

Marketing lead

Follow-up conversation

between client and consulting

Consulting drafts

proposal

Consulting: Initial

conversation with client

Consulting lead

Sales lead

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(cont’d) Nested Sub-process

Final invoice created by

accounting, sales, or consulting

Delivery of service by consulting

50% invoiced by accounting,

sales, or consulting

Letter of agreement

signed

Project manager assigned

Form completed by

sales or consulting

Verbal OK from client

Is proposal

complete?

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Service Blueprints

A service blueprint is a special flowchart of service process that shows which steps have customer contact.

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Credit and invoicing

Production Control and Manufacturing

Assembly and Shipping

PR

OD

UC

TIO

NF

INA

NC

ES

AL

ES

CU

ST

OM

ER

Service Blueprint of a Sales Process

No

Yes No

Yes

Payment received

Paym

ent

Order stopped

Ord

er cancellatio

nOrder

cancelled

Payment sent

Pro

du

ct packag

es

Product and invoice

received

100% of credit

checked within 24 hours

Two scheduling errors per

quarter

Invoice sent

No

tice of sh

ipm

ent

Order shipped

Order pickedOrder

Packages assembled and

inventoried

`Items manufactured

Production scheduled

Inventory adjusted

Invoice prepared

Credit check OK?

New customer?

Order received

Ord

er

Order entered

Order completed

and submitted

Ord

er

Order generated

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Step 2: Bottleneck Analysis

Process terminologyCycle time: the average time between completion of

successive units. Bottleneck: the slowest task of the process (longest

cycle timeBottle neck determines the cycle time of the whole process.

Flow time: length of time for a unit to travel through the system.

Capacity rate: # units flow through a system / time = inverse of cycle time

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Capacity Rate and Bottleneck

InputBottleneck

Maximum Flow Rate (Capacity Rate)

Flow Time

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Validate Order Download

Capacity rate:

Cycle time:

The (whole) process

Flow time:

Capacity rate:

Cycle time:

40 units / hr 30 units / hr

1.5 min 2 min

1.5 min + 2 min = 3.5 min

30 units / hr

2 min

Individual stages

Example

WIP Finishedorders

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Capacity Rate and Bottleneck

InputBottleneck

Flow Time

Maximum Flow Rate (Capacity Rate)

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Validate Order Download

Capacity rate:

Cycle time:

The (whole) process

Flow time:

Capacity rate:

Cycle time:

40 units / hr 60 units / hr

1.5 min 1 min

1.5 min + 2 min = 3.5 min

40 units / hr

1/40 hr = 1.5 min

Individual stages

(cont’d) adding an extra server for download

WIP Finishedgoods

Download

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Bottleneck Analysis – a Summary

Flow time versus cycle time Flow time is for a unit Cycle time is for a task or the whole process

Relationship between bottleneck, system capacity, and cycle time Bottleneck is the slowest task(s), i.e. longest cycle time Bottleneck determines capacity and cycle time of system [capacity] = 1 / [cycle time of system]

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Additional Data Analysis Tools

Help identify causes of problems

1) Pareto charts

2) Cause-and-effect diagrams

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Pareto Charts

80-20 rule: 80% of the activity is caused by 20% of the factors

The idea is profoundA majority of natural resource is consumed by a

smaller portion of people on earthMost wealth is own by a few rich peopleAt University of Michigan, most of printing quota

(>90%) is used by a small portion of students (<20%)

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Example: Pareto Chart for a Restaurant

Complaints have been rising at a restaurant by 13th avenue. The manager would like to find out what issues to address and present the findings in a way his employees can understand.

The manager surveyed his customers over several weeks and collected the following data:

Complaint Frequency

Quality of service 15

Speed of service 40

Taste of food 5

Silverware is not clean 20

Too noisy 15

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100% = 69.7%(42 + 20)

89

– 100.0%

– 80.0%

– 60.0%

– 40.0%

– 20.0%

– 0.0%

45 –

40 –

35 –

30 –

25 –

20 –

10 –

5 –

0 –

Fa

ilu

res

Quality of service

Speed of service

FoodSilverware Noise

Failure Name

Pe

rce

nt

of

To

tal

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Fishbone Diagram for Cause-Effect Analysis

EXAMPLE: The operations manager for Checker Board Airlines at Port Columbus International Airport noticed an increase in the number of delayed flight departures.

The manager identifies four major categories of causes: Equipment Personnel Materials Procedures “Other factors”

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Delayed flight departures

Weather

Air traffic delays

Other Aircraft late to gate

Mechanical failures

Equipment

Passenger processing at gate

Late cabin cleaners

Unavailable cockpit crew

Late cabin crew

Personnel

Poor announcement of departures

Weight/balance sheet late

Delayed check-in procedure

Waiting for late passengers

Procedures

Late baggage to aircraft

Late fuel

Late food service

Contractor not provided with updated schedule

Materials

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The Wellington Fiber Board Company produces headliners. Management wanted to identify which failures were most prevalent and to find the cause.

1. Develop a checklist of different types of process failures from the last month’s data

2. Derive a Pareto chart

3. Conduct a cause-and-effect (fishbone) diagram The manager finds that the personnel on the three shifts

had varied amounts of experience.

4. The manager reorganizes the production reports into a bar chart according to shift.

Example: Headliner Process Failures

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Defect type Tally Total

A. Tears in fabric 4

B. Discolored fabric 3

C. Broken fiber board36

D. Ragged edges 7

Total 50

|

|

|

|

| |

|

| ||

||

|

| | | | || | | || | |

| | | || | | || | | ||

|| ||

C

D

A B

50 –

40 –

30 –

20 –

10 –

0 –

– 100

– 80

– 60

– 40

– 20

– 0

Nu

mb

er o

f F

ailu

res

Cu

mu

lati

ve P

erce

nta

ge

Defect Failure

Step 1. Checklist

Step 2. Pareto Chart

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Step 3. Cause-and-Effect Diagram

Step 4. Bar Chart

Humidity

Schedule change

Other

Out of specification

Not available

Materials

Training

Absenteeism

Communication

People

Machine maintenance

Machine speed

Wrong setup

Process

Broken fiber board

20 –

–

15 –

–

10 –

–

5 –

–

0 –

Nu

mb

er o

f B

roke

n F

iber

Bo

ard

sShift

First Second Third