Manufacturing Processes

Operations ManagementDr. Ron Lembke

Break-Even Analysis

Given a fixed cost, how many do we have to make to break even?

A: buy units @ $200 B: Make on lathe: $80,000 + $75

each C: Machining Center: $200,000 +

$15 eachWhich is the cheapest way?

Break-Even Analysis If we only sell 1, which is cheapest? If we sell a gazillion, which is

cheapest?

Break-Even

Volume

Tota

l Cos

ts Outsource

Draw Lowest Fixed Cost Line

Break-Even

Volume

Tota

l Cos

ts Outsource

Lathe

Add Next-Lowest Cost

Break-Even

Volume

Tota

l Cos

ts Outsource

Lathe

Machining Center

Break-Even

Volume

Tota

l Cos

ts Outsource

Lathe

Machining Center

Outsource Lathe

MachiningCenter

Break-Even Analysis When does Lathe become cheaper? 80,000 + 75*x = 200*x 80,000 = 125*x x = 640

Break-Even Analysis

Volume

Tota

l Cos

ts Outsource

Lathe

Machining Center

Outsource Lathe

MachiningCenter

640

Break-Even Analysis When does Machining Center become

cheaper? 80,000 + 75*x = 200,000 + 15*x 120,000 = 60*x x = 2,000

Break-Even Analysis

Volume

Tota

l Cos

ts Outsource

Lathe

Machining Center

Outsource Lathe

MachiningCenter

640 2,000

Break-Even Analysis

How much do sales have to grow to make an investment pay off?

Fixed costs = $10,000Direct labor = $1.50 / unitMaterial = $0.75 / unitSales price = $4.00How many units must sell to break

even?

Break-Even Analysis

How to measure the value of a dollar saved tomorrow?

Can you say “Net Present Value?”

Break-Even Analysis

How to measure the value of a dollar saved tomorrow?

Can you say “Net Present Value?”I knew you could.

Process Flow Structures Job Shop - low standardization, every order

is a different product, new design Batch Shop - Stable line of products,

produced in batches Assembly Line - Discrete parts moving from

workstation to workstation Continuous Flow - Undifferentiated flow of

product (beer, paper, etc.)

Process Strategy

Variety

Low

Medium

High

VolumeLow Medium High

project

Manufacturing Cell

Workcenter

AssemblyLine Continuous

Process

Process Strategy

Variety

Low

Medium

High

VolumeLow Medium High

Process Focus (job shops)

Repetitive (cars, motorcycles)

Product Focus (steel, glass)

Process Focus (Job Shop)Low volume, high variety, “do it all”“Job shop” environment (e.g. Kinko’s)High amount of flexibilityEach job is differentRelatively high cost per unitVery high flexibility

Process Selection / Evolution Products tend to move through the

four stages over life cycle. Unit costs decrease as standardization

increases, and production increases. Flexibility decreases as volume,

standardization increase

Design for Manufacturing -Before

Design for Manufacturing-After

Designing the SystemHow do we decide where to put

things?

Layout TypesProject or Fixed-position layoutProcess-oriented layoutProduct-oriented layout Office layoutWarehouse layoutRetail/service layout

Project or Fixed-Position

Design is for stationary project Workers & equipment come to siteComplicating factors

Limited space at site Changing material needs

Examples Ship building Highway construction

Process-Oriented Layout

Design places departments with large flows of material or people together

Dept. areas have similar processes e.g., All x-ray machines in same area

Used with process-focused processesExamples

Hospitals Machine shops

Process-Oriented Layout Floor Plan

Office

Tool Room

Drill Presses

Table Saws

© 1995 Corel Corp.

© 1995 Corel Corp.

Process Layout

+ Allows specialization - focus on one skill

+ Allows economies of scale - worker can watch several machines at once

+ High level of product flexibility-- Encourages large lot sizes-- Difficult to incorporate into JIT-- Makes cross-training difficult

Construct ‘from-to-matrix’Determine space needs for each dept.Develop initial schematic diagramDetermine layout cost, Xij • Cij

By trial-and-error, improve initial layoutPrepare detailed plan

Includes factors besides cost

Process-Oriented Layout Steps

Process-Oriented ExampleYou work in facilities engineering. You want to find the cost of this layout. The cost of moving 1 load between adjacent dept. is $1. The cost between nonadjacent dept. is $2.

60 ft.

40 ft.

Dept. 1 Dept. 2 Dept. 3

Dept. 4 Dept. 5 Dept. 6

There are 6! or 720 possibilities! Clearly, we can’t look at them all.

50 100 0 0 20

30 50 10 0

20 0 100

50 0

0

From-to-Matrix

5

1 2 3 4 5 6Department

Dept.

1

2

3

4

6

Number of Trips

20

100

50 30

50

50

10

20

Schematic Diagram & CostDept. Dept. Cost

1 3$ 2001 2$ 501 6$ 404 2$ 504 3$ 404 5$ 502 5$ 102 3$ 303 6$ 100

Total Cost $570

1 2 3

64 5

100

20

30

50 100

50

50

10

20

Schematic Diagram & CostDept. Dept. Cost

1 2$ 501 3$ 1001 6$ 204 2$ 504 3$ 404 5$ 502 5$ 102 3$ 603 6$ 100

Total Cost $480

2 1 3

64 5

100

Product-Oriented Layout

Facility organized around productDesign minimizes line imbalance

Delay between work stationsTypes: Fabrication line; assembly lineExamples

Auto assembly line Brewery Paper manufacturing.

Cellular Layout (Work Cells)Special case of process-oriented

layoutConsists of different machines brought

together to make a productMay be temporary or permanentExample: Assembly line set up to

produce 3000 identical parts in a job shop

Work Cell Floor Plan

Office

Tool RoomWork Cell

Saws Drills

Work Cell Advantages

Reduces:InventoryFloor spaceDirect labor costs

Increases:Equipment utilizationEmployee participationQuality

Work Cell Layout

+ Facilitates cross-training+ Can easily adjust production volumes+ Easy to incorporate into JIT-- Requires higher volumes to justify-- May require more capital for

equipment

Office Layout Example

Relationship Chart

12

3

Ordinary closeness: President (1) & costing (2)

Absolutely necessary: President (1) & secretary (4)

4

I = Important; U = Unimportant

1 PresidentO

2 Costing UA A

3 Engineering IO

4 President’s Secretary

Relationship Chart

A

OE

OU

UU

UU

U

IO

II

IO

UU

UU

UU

UO

UU

I

IU

UEU

IUE

UUA

UA

II

U

U

E

U

34

21

8765

9

10

12

34

56

78

910

Assembly-Line Balancing

Assembly-Line Balancing

Situation: Assembly-line production.Many tasks must be performed, and

the sequence is flexibleParts at each station same timeTasks take different amounts of timeHow to give everyone enough, but not

too much work for the limited time.

Product-Oriented Layout

Belt Conveyor

Operations

A

Precedence Diagram

Draw precedence graph (times in seconds)

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

Cycle Time The more units you want to produce per hour, the

less time a part can spend at each station. Cycle time = time spent at each spot

C = 800 min / 32 = 25 min 800 min = 13:20C =

Production Time in each day

Required output per day (in units)

Number of Workstations

Given required cycle time, find out the theoretical minimum number of stations

Nt = 97 / 25 = 3.88 = 4 (must round up)

Nt =Sum of task times (T)

Cycle Time (C)

Assignments

Assign tasks by choosing tasks: with largest number of following tasks OR by longest time to complete

Break ties by using the other rule

Number of Following Tasks

Nodes# after

C 6D 5A 4B,E,F

3G,H 2I 1

Choose C first, then, if possible,add D to it, then A, if possible.

A

Precedence Diagram

Draw precedence graph (times in seconds)

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

Number of Following Tasks

Nodes# after

A 4B,E,F

3G,H 2I 1

A could not be added to firststation, so a new station must becreated with A.

B, E, F all have 3 stations after,so use tiebreaker rule: time.B = 5E = 8F = 3 Use E, then B, then F.

A

Precedence Diagram

E cannot be added to A, but E can be added to C&D.

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

A

Precedence Diagram

Next priority B can be added to A.

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

A

Precedence Diagram

Next priority B can be added to A.Next priority F can’t be added to either.

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

Number of Following Tasks

Nodes# afterG,H 2

I 1

G and H tie on number coming after. G takes 15, H is 12, so G goes first.

A

Precedence Diagram

G can be added to F.H cannot be added.

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

A

Precedence Diagram

I is next, and can be added to H, but J cannot be added also.

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

Calculate Efficiency

We know that at least 4 workstations will be needed. We needed 5.

= 97 / ( 5 * 25 ) = 0.776We are paying for 125 minutes of

work, where it only takes 97.

Efficiencyt =Sum of task times (T)

Actual # WS * Cycle Time

A

Precedence Diagram

Try choosing longest activities first.A is first, then G, which can’t be added to A.

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

A

Precedence Diagram

H and I both take 12, but H has more coming after it, then add I.

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

A

Precedence Diagram

D is next, followed by E, so we combine them, but we could have combined E&G. We’ll try that later.

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

A

Precedence Diagram

J is next, all alone, followed by C and B.

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

A

Precedence Diagram

F is last. We end up with 6 workstations.

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

A

Precedence Diagram

Go back and try combining G and E instead of D and E.

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

A

Precedence Diagram

J is next, all alone. C is added to D, and B is added to A.

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

A

Can we do better?

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

A

Precedence Diagram

F can be added to C&D. Five WS again.

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

Reduced CT

Efficiency = 97/100 = 0.97. Much better.

If we set CT = 20, we can produce 3 units per hour.

Goal of 32 units can be produced in 20 * 32 = 640 minutes.

Significant savings over original 800 minutes.

A

Can we do better?

If we have to use 5 stations, we can get a solution with CT = 20.

C

F

D

B

E

H

G

I J20

5

15

12

5 10

8

3

7

12

Calculate Efficiency

With 5 WS at CT = 20

= 97 / ( 5 * 20 ) = 0.97We are paying for 100 minutes of

work, where it only takes 97.

Efficiencyt =Sum of task times (T)

Actual # WS * Cycle Time

Output and Labor Costs

With 20 min CT, and 800 minute workday Output = 800 min / 20 min/unit = 40 Don’t need to work 800 min Goal 25 units: 25 * 20 = 500 min/day 5 workers * 500 min = 2,500 labor min. We were trying to achieve

4 stations * 800 min = 3,200 labor min. Significant labor cost savings

Handling Long Tasks

Long tasks make it hard to get efficient combinations.

Consider splitting tasks, if physically possible.

If not: Parallel workstations use skilled (faster) worker to speed up

Warehouse Layout Design balances space (cube)

utilization & handling cost Similar to process layout

Items moved between dock & various storage areas

Optimum layout depends onVariety of items

storedNo. items picked

© 1995 Corel Corp.

Warehouse Flow

Receiving Shipping

Warehouse Layout

Try to organize storage in such a way that order pickerscan move through the product in a logical and timely manner.

Warehouse Layout

Fastest near the frontFastest within easy reachBulk storage vs. Single item pickingSerpentine vs. oval picking orderRestocking: frequency, safety stock

Cross-Docking

Transferring goods from incoming trucks at receiving docks to outgoing trucks at shipping docks

Avoids placing goods into storage

In-comingOutgoing

© 1984-1994 T/Maker Co.

© 1995 Corel Corp.

Retail/Service Layout

Design maximizes product exposure to customers, profitability per square foot

Decision variables Store flow pattern Allocation of (shelf) space to products

Types Grid design Free-flow design

Video

Retail/Service Layout Grid Design

Office CartsCheck-out

Grocery Store

MeatBread

Mil

k

Retail/Service Layout Free-Flow Design

Feature

Display Table

Trans.Counter

Apparel Store

Retail Store Flow Guidelines

“Prisoner” aisles make you enter store in a particular route, and pass by certain displays

Often contain less profitable (for the store) brands

“Decompression Zone” people walk past first rows of items before settling into shopping mode.

Retail Store Flow Guidelines

Bakery, coffee shop, restaurant spread aromas by entrance to stimulate taste buds

Siren song of the Starbucks (Safeway)

Food samplers throughout store do same

Retail Store Flow Guidelines

Frequently purchased items at far sides of stores so you have to go through entire store (produce or meat).

Profitable sections like produce placed where you keep running into them

Milk

Meat

Produce

Retail Store Flow Guidelines

Major items in middle of aisles so you have to walk down into middle of aisle (Cereal, peanut butter)

‘Power items’ on both sides of aisle so you have to look at both sides

Cereal

PeanutButter

Retail Store Flow Guidelines

Quality of produce section important in customer decisions about which stores to visit, so produce is often prominently displayed upon entrance

People like to see what they’re looking for, not read signs

Cereal

PeanutButter

produce

Retail Store Flow Guidelines

End caps for high-visibility sale items

Large quantities of inventory serve as “psychic stock”

If there is a lot of it, it must be on sale

Stimulates sales

© 1995

Corel Corp.

Retail Store Flow Guidelines

Eliminate cross-over aisles: less wasted floor

space, you have to look at

more items, the more time you

spend in the store, the more you will buy.

Shelf Space Planogram

Computerized tool for shelf-space management

Generated from store’s scanner data on sales

Often supplied by manufacturer Example: P&G

2 ft.

5 facings

VO

-5

VO

-5

VO

-5

SU

AV

E

SU

AV

E

VO

-5P

ER

T

PE

RT

PE

RT

PE

RT

PE

RT

VO

-5

Shelf Placement

Companies prefer to be at eye-level or at child-reaching level

Close to leading brands or high-draw items: snack foods next to the peanut butter or across from the cereal:

Lots of kids visit the area

Slotting Fees Manufacturer pays retailer to get a product into a

store 35,000 new grocery products per year Grocery stores often stock 30,000 items Impossible to evaluate all new products to choose

the best new ones Slotting fees guarantee grocer profits on a product,

help balance risk of trying unknown product. Grocery is a narrow margin business, slotting fees

can represent a significant revenue source.

Slotting Fees Senate Small Business Committee held

hearings on them in 2000. Industry refused to cooperate with GAO. Growers of produce (not just brand names)

now getting involved and complaining. Small businesses claim they can’t afford the

big payments big companies can make. Advocates say small companies can “put

their money where their mouths are” just like anyone else

Perimeter Items People follow perimeter pattern Sale items on end – everyone sees Half of a store’s profit comes from items on

the perimeter Breakfast cereal brings in the most dollars

per square foot Manufacturer incentives increase

profitability of soft drinks “Anchors” at ends of a section: milk and

butter at opposite ends of dairy case