PROCESS SELECTION

Chapter 4
INTRODUCTION to Operation Management 4e, Schroeder
McGraw-Hill/Irwin Copyright 2008 by The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter Outline
Product-Flow Characteristics Classification by Type of Customer Order Process Selection Decisions Product-Process Strategy Focused Operations Mass-customization Cross Functional Decision Making
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Product-Flow Characteristics
Types of Product Flow
Continuous process Assembly/job shop Line Batch Project

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Product-Flow Characteristics Continuous Process

Process industries (beer, paper, oil, etc.) Highly standardized and automated High volumes of production Commodity products Low cost is the order winner Flexibility limited

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Product-Flow Characteristics Assembly Line Flow

Linear sequence of operations Discrete products (autos, appliances, etc.) High-volume, standardized products Inflexibility in product and volume Very efficient Large capital investment

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Assembly Line Flow

(metal bracket, see fig. 4.1)

cut

drill

bend

paint

Task or work station Product flow

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Product-Flow Characteristics Batch Flow

Production of batches or lots Batches flow from one work center to another Low volume products Many different types of products Flow is jumbled and intermittent Flexible labor and equipment

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Batch Flow
(three metal brackets, see fig. 4.2)
Bend

Cut
Drill Task or work station

Paint

Batch A Batch B Batch C

Product flows

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Classification by Type of Customer Order

Make to Stock (MTS) Make to Order (MTO) Assemble to Order (ATO)

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Make to Stock (MTS)

Produce finished goods; customer buys from inventory Advantage: smooth production

Disadvantage: inventory
Key performance measures (next slide)

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MTS Performance Measures

Service level (orders filled when requested) Inventory turnover (sales/avg. inventory) Back order fill rate

Inventory accuracy
Time to replenish

Others, such as shrinkage rate

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Make to Order (MTO)

Start production when customer orders.

Advantage: no finished goods inventory

Disadvantage: intermittent production Key performance measures
Lead time Orders completed on time (or late)

Quality measures

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Assemble to Order (ATO)

Make parts and subassemblies; finish when customer places order. Advantages: less inventory, faster service Disadvantage: some WIP inventory Key performance measures
speed of service inventory levels quality of product and service

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MTS and MTO Comparison

Characteristics
Product

Make-to-Stock
Producer-specified Low variety Inexpensive Balance inventory, capacity, and service

Make-to-Order
Customer-specified High variety Expensive Manage delivery lead times and capacity

Objectives

Main operations problems

Forecasting Planning production Control of invenntory

Delivery promises Delivery time

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Make-to-Stock (Figure 4-3)

Forecast orders

customer

Production Customer Order

Product Finished Goods Inventory

Product

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Make-to-Order (Figure 4-3)

customer
Customer Order Product Production

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Assemble-to-Order (Figure 4-3)

Forecast orders

customer

Production of Subassemblies

Customer order
Product Assembly of the Order Inventory of Subassemblies Subassembly

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Customization Point (Figure 4-4)

MTO MTO ATO MTS

------------------
Supplier Fabrication

Assembly

Distribution

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Process Selection Decisions

Process characteristics matrix Factors affecting process choice

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Process Characteristics Matrix

Characteristics
Continuous and Assembly Line Flow

(Table 4.3)

Make-to-Stock
Auto Assembly Line Oil refinery Cannery Cafeteria Machine shop Fast food Glassware factory Costume Jewelry Speculation homes Commercial painting

Make-to-Order Assemble-to-Order
Auto assembly line Dell Computers Motorola Pager Machine shop Restaurant Hospital Custom jewelry Buildings Movies Ships Portraits
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Batch and Job Shop

Project

Factors Affecting Process Choice

Market conditions and competition Capital requirements Labor supply and cost State of technology

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Product-Process Strategy
Strategy must consider not only the product or service, but also how to produce it. As many industries move through their product life cycles, they also move through a process life cycle. e.g. the traditional bread bakery vs. the modern automated bakery.

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Product Life Cycle Stages

1. Unique, one of a kind 2. Low volume, low standardization 3. Low volume, multiple products 4. Higher volume, few major products 5. High volume, high standardization, commodity

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Process Life Cycle Stages

1. Project 2. Job shop 3. Batch 4. Assembly line 5. Continuous

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PRODUCT-PROCESS MATRIX (Figure 4.5)

Unique, one of a kind product Low volume, low standardization

Low volume, Higher volume Multiple few major products products

High volume, high standardization, commodity

Project

Building

NONE
Printing

Job Shop

Batch

Heavy Equipment Auto assembly

Assembly line

Continuous

NONE

Sugar Refinery

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Focused Operations
Company may have products or services with different volumes and levels of standardization. Mixing them in the same operation can cause significant problems. Focus involves separating different products or services in the same facility into PWPs.

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Types of Focus
Product focus Process type Technology Volume of sales Make-to-stock and make-to-order New products and mature products

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Mass Customization
A strategy to provide products in lot sizes of one in high volume. Possible because of flexible manufacturing. Based on economies of scope instead of economies of scale, i.e. a high variety of products from a single process.

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Forms of Mass Customization

Modular production & ATO (e.g. Dell) Fast changeover (e.g. Motorola) Postponement of options (e.g. Hewlett-Packard)

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Cross-Functional Decision Making

or, who has a stake in process choice?
Marketing wants fast response to customer demand Finance must find the funds to configure the process HR must provide the properly skilled workers IT must serve different data requirements Accounting must be flexible in setting performance measures

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Summary
Product-Flow Characteristics Classification by Type of Customer Order Process Selection Decisions Product-Process Strategy Focused Operations Mass-customization Cross Functional Decision Making
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End of Chapter Four

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