2. Manufacturing Processes and Break-Even Analysis

Manufacturing Processes

  • Types of Processes

    • Conversion: Transforming raw materials. Example: Iron to steel.

    • Fabrication: Creating products from materials. Example: Cloth to clothes.

    • Assembly: Combining parts into components. Example: Parts to components.

    • Testing: Evaluating product quality.

Basic Workflow Structures

  • Project layout

  • Workcenter

  • Manufacturing cell

  • Assembly line

  • Continuous process

Break-Even Analysis

  • A standard approach to choosing among alternative processes or equipment.

  • Determines the point where the process or equipment starts generating a profit.

  • Determines the point where total revenue equals total cost.

  • Break-Even Analysis Formula

    • Break-even Demand = Purchase cost of process or equipmentPrice per unit - Cost per unit\frac{\text{Purchase cost of process or equipment}}{\text{Price per unit - Cost per unit}}

    • Break-even Demand = Total fixed costs of process or equipmentUnit price to customer - Variable costs per unit\frac{\text{Total fixed costs of process or equipment}}{\text{Unit price to customer - Variable costs per unit}}

Break-Even Analysis Example

  • Scenario: Example: Suppose you want to purchase a new computer that will cost $5,000. It will be used to process written orders from customers who will pay $25 each for the service. The cost of labor, electricity and the form used to place the order is $5 per customer.

    • How many customers will we need to serve to permit the total revenue to break-even with our costs?

  • Solution:

    • Break-even Demand = Total fixed costs of process or equipmentUnit price to customer - Variable costs\frac{\text{Total fixed costs of process or equipment}}{\text{Unit price to customer - Variable costs}}

    • Break-even Demand = 5,000(25−5)=250\frac{5,000}{(25-5)} = 250

    • Therefore, 250 customers are needed to break even.

Manufacturing Process Flow Design

  • A process flow design maps the specific processes that raw materials, parts, and subassemblies follow as they move through a plant.

  • Common tools for process flow design:

    • Assembly drawings

    • Assembly charts (Gozinto charts)

    • Operation and route sheets

Example: Assembly Chart (Gozinto)

Example: Process Flow Chart