OPERATIONS MANAGEMENT for MBAs Third Edition

Chapter 3: Process Planning and Design 1

OPERATIONS MANAGEMENTfor MBAs Third Edition

Prepared byE. Sonny Butler

Georgia Southern University

Meredith and Shafer

John Wiley and Sons, Inc.


Chapter 3

Process Planning and Design


Process Planning and Design

Chapter 2 identified the critical factors in providing value to the customer. This chapter discusses the selection and design of the transformation process that can deliver those factors—low cost, high quality, enhanced functionality, speed, and so on—in an efficient and effective manner.


Introduction

Fender's Custom Shop Assembly line at IBM's plant in Charlotte,

North Carolina Rickard Associates, an editorial production

company Martin Marietta's aerospace electronics

manufacturing facility in Denver, Colorado Nynex


Examples Examples illustrate several transformation systems.

The Fender Custom Shop is a job shop that has specialized departments for routing, lathe operations, inlaying, paint and finishing, and final assembly. Because work is organized by the task performed, Rickard Associates is also a job shop - even though the work is not performed in one location. Companies like Rickard that rely on information technology to bring separated workers together are referred to as virtual organizations. Martin Marietta converted into focused factories. And assembly lines like the one IBM uses are referred to as flow shops.


Fender’s Custom Shop

Customers include Eric Clapton, John Deacon (Queen), David Gilmour, Yngwie Malmsteen and Stevie Ray Vaughn

Production Steps: computer controlled routers and lathes

shape guitar bodies and necks also have Neck Duplicator necks and bodies hand and machine

sanded


Fender’s Custom Shop continued

detailed inlay work done with Hegner precision scroll saw

paint and finishing operations in special room where air is re-circulated 10 times/minute

buffed hung up and seasoned for two weeks final assembly by actual musicians


IBM’s Charlotte, NC Plant

Assembly line produces 27 significantly different products

Products include hand-held bar-code scanners, portable medical computers, fiber-optic connectors, and satellite communications devices

“Kits” of parts delivered to workers Computer screen displays assembly

instructions


Rickard Associates

Produces magazines and marketing materials Only two of editorial production company’s

employees work at headquarters in NJ Art director works in AZ Editors are located in FL, GA, MI, and D.C. Freelancers even more scattered Internet and AOL used to coordinate work


Martin Marietta Aerospace Plant

Originally set up as job shop with numerous functional departments high WIP levels long lead times long travel distances departmental barriers inhibited communication

Plant subsequently arranged into three focused factories


Martin Marietta continued

Each focused factory completed entire electronic assembly for particular application

Each focused factory treated as separate business enterprise

Factory manager assigned to each focused factory

“NFL draft” used to select worker teams


Martin Marietta continued

Within focused factories part families identified based on technology and processes

Standard routings identified for each part family Improvements

seven months of consecutive production with no scrap

50% reduction in WIP 21% reduction in lead times 90% reduction in overtime


Nynex

Analyzed company in terms of four core processes customer operations customer support customer contact customer provisioning


Nynex continued

Obtained services of Boston Consulting Group

Visited 152 companies to document best practices

Estimated savings are $1.5 to $1.7 billion


Variety of Transformation Systems

Fender Custom Shop is job shop Rickard Associates is job shop and is

also a virtual organization Martin Marietta converted from a job

shop to focused factories IBM uses a flow shop


Transformation System Design and Layout Analysis

Transformation system design considers alternative transformation forms and selects best one given characteristics of desired outputs.

Layout analysis seeks to maximize the efficiency or effectiveness of operations.


Forms of Transformation Systems

Continuous Process


Continuous Process

Highly standardized products in large volumes

Often these products have become commodities

Typically these processes operate 24 hours/day seven days/week

Objective is to spread fixed cost over as large a volume as possible


Continuous Process continued

Starting and stopping a continuous process can be prohibitively expensive

Highly automated and specialized equipment used

Layout follows the processing stages Output rate controlled through equipment

capacity and flow mixture rates


Continuous Process continued

Low labor requirements

Often one primary input

Initial setup of equipment and procedures very complex



Flow Shop


Flow Shop

Similar to continuous process except discrete product is produced

Heavily automated special purpose equipment

High volume - low variety Both services and products can use

flow shop form of processing


A Generalized Flow Shop Operation


Advantages of the Flow Shop

Low unit cost specialized high volume equipment bulk purchasing lower labor rates low in-process inventories simplified managerial control


Disadvantages of Flow Shop

Variety of output difficult to obtain Difficult to change rate of output Minor design changes may require

substantial changes to the equipment Worker boredom and absenteeism Work not very challenging Vulnerable to equipment breakdowns


Disadvantages of Flow Shop continued

Line balanced to slowest element Large support staff required Planning, design, and installation very

complex task Difficult to dispose of or modify special

purpose equipment


Flow Shop Layout

Objective is to assign tasks to groups The work assigned to each group

should take about the same amount of time to complete

Final assembly operations with more labor input often subdivided easier

Paced versus unpaced lines


Line Balancing

number of theoretical workstations, task times / cycle timeTN

efficiency = outputinput

total task timeN stations) cycle timeA

(

demand work timeavailable timeCycle


Line Balancing Example

Task Time Required PrecedesA 2.2 min. B, C, DB 3.4 EC 1.7 ED 4.1 FE 2.7 FF 3.3 GG 2.6 --


Line Balancing Example continued

Company operates one shift per day Available time per shift is 450 minutes Demand is 100 units/day


Precedence Diagram

A

B

C

D

E

F G


Calculations

cycle time = 450/75 = 6 minutes/part

NT = 20/6 = 3.33 = 4 stations


Task Assignment

StationTimeAvail.

Elig.Tasks

WillFit?

TaskAssign.

IdleTime

1 6.0 A A

3.8 B,C,D B,C B

0.4 C,D -- -- 0.4

2 6.0 C,D C,D D

1.9 C C C

0.2 E -- -- 0.2


Task Assignment continued

StationTimeAvail.

Elig.Tasks

WillFit?

TaskAssign.

IdleTime

3 6.0 E E E

3.3 F F F 0.0

4 6.0 G G G 3.4


Line Balancing Solution

A

B

C

D

E

F G

Station 1

Station 2

Station 3

Station 4


Efficiency

efficiency = 20/(4*6) = 83.3%


Precedence Graph for Credit Applications


Stations Assignments for Credit Application



Job Shop


Job Shop

High variety - low volume Equipment and staff grouped based on

function Each output processed differently


A Generalized Job Shop Operation


Advantages of the Job Shop

Flexibility to respond to individual demands Less expensive general purpose equipment

used Maintenance and installation of general

purpose equipment easier General purpose equipment easier to modify

and therefore less susceptible to becoming obsolete


Advantages of the Job Shop continued

Dangerous activities can be segregated from other operations

Higher skilled work leading to pride of workmanship

Experience and expertise concentrated Pace of work not dictated by moving line Less vulnerable to equipment

breakdowns


Disadvantages of the Job Shop

General purpose equipment is slower Higher direct labor cost High WIP inventories High material handling costs Management control very difficult


Directly Specified Closeness Preferences

A = absolutely necessary E = especially important I = important O = ordinary closeness OK U = unimportant X = undesirable


Cost-Volume-Distance Model

TC = C V Di=1

N

ij ij ijj=1

N


Office Layout



Cellular Production


The Cell Form

Combines flexibility of job shop with low costs and short response times of flow shop

Based on group technology First identify part families Then form machine cells to produce

part families


Conversion of a Job Shop Layout to a Cellular Layout


Organization of Miscellaneous Parts into Families


Advantages of Cellular Production

Reduced machine setup times increased capacity economical to produce in smaller batch sizes smaller batch sizes result in less WIP less WIP leads to shorter lead times shorter lead times increase forecast accuracy

and provide a competitive advantage


Advantages of Cellular Production continued

Parts produced in one cell Capitalize on benefits of using worker

teams Minimal cost to move from job shop to

cellular production (e.g. EHC) Can move from cellular production to

“mini-plants”


Disadvantages of Cellular Production

Volumes too low to justify highly efficient high volume equipment

Vulnerable to equipment breakdowns Balancing work across cells Does not offer the same high degree

of customization as the job shop


Cellular Layout

Teams of workers and equipment to produce families of outputs

Workers cross-trained Nominal cells versus physical cells. Remainder cell Cell formation methods

production flow analysis


Original Machine-Component Matrix

A B C D E1 1 1 12 1 13 1 1 14 1 15 1 1


Reordered Machine-Component Matrix

A C E B D1 1 1 13 1 1 15 1 12 1 14 1 1



Project Operations


Project Operations

Large scale Finite duration Nonrepetitive Multiple

interdependent activities

Offers extremely short reaction times


Selection of the Process


Volume/Variety Considerations

High volume indicate automated mass production

High variety implies use of skilled labor and general purpose equipment

Make-to-stock versus make-to-order


Effect of Output Characteristics on Transformation Systems


Product/Process Life Cycles

In R&D stage, product made in small volumes

At peak of life cycle, demand may justify high volume special purpose equipment

System should evolve as market evolves Whether an organization moves with a

product through its life cycle depends on the organization’s focus


Selection of Transformation System by Stage of Life Cycle


Service Processes

Often implemented with little development or pretesting

Need to consider amount of customer contact

Customers may not arrive at smooth and even increments

Including customer in service process provides opportunities to improve service


New Transformational Technologies and Reengineering


Information Technology

World Wide Web Federal Express

Web server set up in late 1994 By 1996 12,000 customers using service each

day to access package-tracking database provides higher customer service saves FedEx $2 million per year

Intranets


Information Technology continued

Decision support systems Artificial intelligence Expert systems


The Office of the Future

Focus of 1980s was on improving individual productivity

Focus 1990s is enhancing way teams work together

Groupware communications (e-mail) collaboration (access to shared data) coordination (jointly accomplishing activities)


Manufacturing Technologies

Numerical Control (NC) computer numerical control direct numerical control

Robotics Flexible Manufacturing Systems (FMS)


Business Process Design (Reengineering)


Division of Labor Concept

Work broken down into its simplest most basic tasks Performing same task facilitates attaining

greater skill No time lost switching to another task Workers well positioned to improve tools

and techniques


Division of Labor Concept continued

Division of labor concept not challenged until recently despite dramatic changes in technology

Quality, innovation, service, and value more important than cost, growth, and control


Process

Set of activities that taken together produce a result of value to the customer

Organizing on basis of processes Eliminate delays and errors when work is

handed off Capture information once and at source When people closest to process perform work,

there is little need for management overhead


Business Process Design (BPD)

The fundamental rethinking and radical redesign of business processes to bring about dramatic improvements in performance

Hammer, M. and Stanton, S. The Reengineering Revolution, Harper Business, 1995.


Radical

Profoundly change the way work performed

Not concerned with making superficial changes

Get to root Get rid of old Reinventing, not improving


Redesign

BPD is about designing how work is done

Smart, capable, well trained, highly motivated employees mean little if the way work is performed is poorly designed


Process

All organizations perform processes Customers not interested in individual

activities but rather overall results Few of them are organized on the basis

of processes Thus, processes tend to go unmanaged Team approach one way this addressed


Dramatic

Quantum leaps in performance, not marginal or incremental improvements

Breakthroughs in performance


IBM Credit Example


IBM Credit Example continued

Order logged by 1 of 14 people in conference room

Carted upstairs to credit department Information entered into computer to

check borrower’s creditworthiness Results written on piece of paper



Business practices department modified standard loan covenant in response to customer requests

Used its own computer system Pricer keyed data into PC to determine

appropriate interest rate Administrator converted to quote letter

and Fedexed to field sales rep.



Average time to process a request was 6 days

Could take as long as 2 weeks Actual processing time 90 minutes Deal Structurer

Turnaround time 4 hours Number of deals processed increased 100

times with small reduction in head count

Chapter 3: Process Planning and Design

84


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