Process Strategy and Capacity & Constraint Management - Study Notes

Process Strategy

  • Objective: to create a process to produce offerings that meet customer requirements within cost and other managerial constraints.
  • How to produce a product or provide a service that:
    • Meets or exceeds customer requirements
    • Meets cost and managerial goals
    • Has long-term effects on efficiency and production flexibility, as well as costs and quality

Four basic process strategies

  • Process focus
  • Repetitive focus
  • Product focus
  • Mass customization

Within these basic strategies there are many ways they may be implemented.

Process Focus

  • Facilities are organized around specific activities or processes
  • General purpose equipment and skilled personnel
  • High degree of product flexibility
  • Typically high costs and low equipment utilization
  • Product flows may vary considerably, making planning and scheduling a challenge

Repetitive Focus

  • Facilities often organized as assembly lines
  • Characterized by modules with parts and assemblies made previously
  • Modules may be combined for many output options
  • Less flexibility than process-focused facilities but more efficient

Product Focus

  • Facilities are organized by product
  • High volume but low variety of products
  • Long, continuous production runs enable efficient processes
  • Typically high fixed cost but low variable cost
  • Generally less skilled labor

Mass Customization

  • The rapid, low-cost production of goods and services to meet increasingly unique customer desires
  • Combines the flexibility of a process focus with the efficiency of a product focus

Making Mass Customization Work

  • Imaginative product design
  • Flexible process design
  • Tightly controlled inventory management
  • Digitized communication tracks orders and material
  • Responsive partners in the supply chain

Crossover Chart Example

  • Data for three software products:

    • Software A: Fixed Cost = $200{,}000, Variable Cost per report = $60
    • Software B: Fixed Cost = $300{,}000, Variable Cost per report = $25
    • Software C: Fixed Cost = $400{,}000, Variable Cost per report = $10

  • Crossover point between A and B (x):

    • General formula: if Fi + vi x = Fj + vj x, then
      x = \frac{Fj - Fi}{vi - vj}
    • For A and B:
      x_{A!B} = \frac{300{,}000 - 200{,}000}{60 - 25} = \frac{100{,}000}{35} \approx 2{,}857.14\,\text{reports}

  • Crossover point between B and C (x):

    • For B and C:
      x_{B!C} = \frac{400{,}000 - 300{,}000}{25 - 10} = \frac{100{,}000}{15} \approx 6{,}666.67\,\text{reports}

  • Interpretation:

    • Software A is most economical from 0 up to about 2{,}857 reports
    • Software B is most economical from about 2{,}857 to 6{,}667 reports
    • Software C is most economical beyond about 6{,}667 reports

Crossover Chart Example (Cost at specific volumes)

  • Costs for 1 report:

    • A: \$200{,}000 + 60(1) = \$200{,}060
    • B: \$300{,}000 + 25(1) = \$300{,}025
    • C: \$400{,}000 + 10(1) = \$400{,}010

  • Costs for 5{,}000 reports:

    • A: \$200{,}000 + 60(5{,}000) = \$500{,}000
    • B: \$300{,}000 + 25(5{,}000) = \$425{,}000
    • C: \$400{,}000 + 10(5{,}000) = \$450{,}000

  • Economical choice by volume:

    • At low volumes, A is cheapest
    • After the first crossover (~2,857 reports), B becomes cheaper
    • After the second crossover (~6,667 reports), C becomes cheapest

Selection of Equipment

  • Decisions can be complex as alternate methods may be available
  • Important factors may include:
    • Cost
    • Cash flow
    • Market stability
    • Quality
    • Capacity
    • Flexibility

Process Analysis and Design (1 of 2)

  • Is the process designed to achieve a competitive advantage?
  • Does the process eliminate steps that do not add value?
  • Does the process add customer value? (fill-in from transcript)
  • Will the process win orders?

Tools for Process Analysis and Design

  • Flowchart: shows movement of people or material
  • Time-Function Mapping: adds time on the horizontal axis to a flowchart
  • Process Charts: use symbols to analyze movement
  • Value-Stream Mapping: expands time-function mapping to see where value is added in the entire supply chain
  • Service Blueprinting: focuses on the customer and the provider’s interaction with the customer; identifies potential failure points

Special Considerations for Service Process Design

  • Some interaction with customer is necessary, but this often affects performance adversely
  • The better these interactions are accommodated in the process design, the more efficient and effective the process
  • Find the right combination of cost and customer interaction

Production Technology

  • Machine Technology
  • Automatic Identification Systems (AISs)
  • Process Control
  • Vision Systems
  • Robots
  • Automated Storage and Retrieval Systems (ASRSs)
  • Automated Guided Vehicles (AGVs)
  • Flexible Manufacturing Systems (FMSs)
  • Computer-Integrated Manufacturing (CIM)

Machine Technology

  • Increased precision, productivity, and flexibility
  • Reduced environmental impact
  • Computer numerical control (CNC)
  • Additive manufacturing builds parts by adding material rather than removing it; supports innovative product design, minimal tooling, minimal assembly time, low inventory, and reduced time to market

Automatic Identification Systems (AISs) and RFID

  • Improved data acquisition
  • Reduced data entry errors
  • Increased speed
  • Increased scope of process automation
  • Bar codes and RFID

Process Control

  • Real-time monitoring and control of processes
  • Sensors collect data
  • Devices read data on a periodic basis
  • Measurements translated into digital signals, then sent to a computer
  • Computer programs analyze the data
  • Resulting output may take numerous forms; outputs are sent to other parts of the process to help control them

Automated Guided Vehicle (AGV)

  • Automatically guided and controlled carts
  • Used for movement of products and/or individuals

Automated Storage and Retrieval Systems (ASRSs)

  • Automated placement and withdrawal of parts and products
  • Reduced errors and labor
  • Particularly useful in inventory and test areas of manufacturing firms

Technology in Services

  • Financial Services
  • Education
  • Utilities and government
  • Restaurants and foods
  • Communications
  • Hotels
  • Wholesale/retail trade
  • Transportation
  • Health Care
  • Airlines

Capacity

  • The capacity, or the number of units a facility can hold, receive, store, or produce in a period of time
  • Determines fixed costs
  • Determines if demand will be satisfied
  • Three time horizons

Planning Over a Time Horizon

  • Intermediate-range planning (aggregate planning): modify capacity using capacity, subcontracting, build or use inventory, add or sell equipment, more or improved training, add or reduce shifts, add or reduce personnel
  • Short-range planning (scheduling): schedule jobs, schedule personnel, allocate machinery
  • Long-range planning: design new production processes, add or sell long-lead-time equipment, acquire or sell facilities, acquire competitors
  • Note: difficult to adjust capacity as options become limited

Design and Effective Capacity

  • Design capacity is the maximum theoretical output of a system
  • Normally expressed as a rate
  • Effective capacity is the capacity a firm expects to achieve given current operating constraints
  • Often lower than design capacity
  • Includes planned resource unavailability, such as preventative maintenance, machine setups/changeovers, scheduled breaks

Actual Output

  • is reality

Utilization and Efficiency

  • Utilization is the percentage of design capacity actually achieved
  • Efficiency is the percentage of effective capacity actually achieved
  • Formulas:
    • Utilization = \frac{Actual\ output}{Design\ capacity}
    • Efficiency = \frac{Actual\ output}{Effective\ capacity}

Capacity and Strategy

  • Capacity decisions impact all 10 decisions of Operations Management as well as other functional areas of the organization
  • Capacity decisions must be integrated into the organization’s mission and strategy

Capacity Considerations

  • Forecast demand accurately
  • Match technology increments and sales volume
  • Find the optimum operating size (volume)
  • Build for change

Managing Demand

  • Demand exceeds capacity: curtail demand by raising prices, scheduling longer lead times, discouraging marginally profitable business
  • Long-term solution: increase capacity
  • Capacity exceeds demand: stimulate market; product changes; adjust to seasonal demands; produce products with complementary demand patterns

Tactics for Matching Capacity to Demand

  • Making staffing changes
  • Adjusting equipment: purchasing additional machinery; selling or leasing out existing equipment
  • Improving processes to increase throughput
  • Redesigning products to facilitate more throughput
  • Adding process flexibility to meet changing product preferences
  • Closing facilities

Service-Sector Demand and Capacity Management

  • Demand management: appointments, reservations, FCFS rule
  • Capacity management: full-time, temporary, part-time staff

Bottleneck Analysis and the Theory of Constraints

  • Each work area can have its own unique capacity
  • Capacity analysis determines the throughput capacity of workstations in a system
  • A bottleneck is a limiting factor or constraint
  • A bottleneck has the lowest effective capacity in a system
  • The time to produce a unit or a specified batch size is the process time

Bottleneck Analysis (continued)

  • The bottleneck time is the time of the slowest workstation (the one that takes the longest) in a production system
  • The throughput time is the time it takes a unit to go through production from start to end, with no waiting
  • Example figure shows times 2 min/unit, 4 min/unit, 3 min/unit for units A, B, C (Figure S7.4)

Bottleneck Management

  • Release work orders to the system at the pace set by the bottleneck’s capacity (drum)
  • Use buffers (buffer) and rope mechanisms to synchronize the flow
  • Lost time at the bottleneck represents lost capacity for the whole system
  • Increasing capacity at a nonbottleneck station is a mirage
  • Increasing capacity at the bottleneck increases the capacity of the whole system