Chapter 6
Processes and Technology
Russell and Taylor
Operations Management, 9th Edition
Process Strategy
• Vertical integration
• extent to which firm will produce inputs and control outputs
of each stage of production process
• Capital intensity
• mix of capital (i.e., equipment, automation) and labor
resources used in production process
• Process flexibility
• ease with which resources can be adjusted in response to
changes in demand, technology, products or services, and
resource availability
• Customer involvement
• role of customer in production process
Copyright ©2017 John Wiley & Sons, Inc. 6-2
Process Planning
• Process
• Group of related tasks with specific inputs & outputs
• Process design
• tasks to be done & how they are coordinated among
functions, people, & organizations
• Process strategy
• an organization’s overall approach for physically
producing goods and services
• Process planning
• converts designs into workable instructions for
manufacture or delivery
Copyright ©2017 John Wiley & Sons, Inc. 6-3
Outsourcing
• Cost
• Is it cheaper to make or buy the item?
• Capacity
• Does the company have the capacity?
• Quality
• Easier to control quality in your own factory
• Speed
• Shipping time can reduce savings
• Reliability
• Quality and timing are reliability measures
• Expertise
• Protect proprietary information
Copyright ©2017 John Wiley & Sons, Inc. 6-4
Sourcing Continuum
Copyright ©2017 John Wiley & Sons, Inc. 6-5
Process Selection
• Projects
• one-of-a-kind production of a product to customer order
• Batch production
• process many different jobs at the same time in groups or
batches
• Mass production
• produce large volumes of a standard product for a mass
market
• Continuous production
• used for very-high volume commodity products
Copyright ©2017 John Wiley & Sons, Inc. 6-6
Product-Process Matrix
Copyright ©2017 John Wiley & Sons, Inc. 6-7
Types of Processes
PROJECT BATCH MASS CONT.
Type of Made-to- Made-to-
Unique order stock Commodity
product
(customized) (standardized )
One-at-a- Few
Type of Mass Mass
time individual
customer market market
customers
Product
demand Infrequent Fluctuates Stable Very stable
Copyright ©2017 John Wiley & Sons, Inc. 6-8
Copyright ©2017 John Wiley & Sons, Inc. 6-9
Process Selection With
Break-Even Analysis
• Study cost trade-offs based on demand volume
• Cost
• Fixed costs
• constant regardless of the number of units produced
• Variable costs
• vary with the volume of units produced
• Revenue
• price at which an item is sold
Copyright ©2017 John Wiley & Sons, Inc. 6-10
Process Selection With
Break-Even Analysis
• Total revenue
• price times volume sold
• Profit
• difference between total revenue and total cost
Copyright ©2017 John Wiley & Sons, Inc. 6-11
Process Selection With
Break-Even Analysis
Total cost = fixed cost + total variable cost
TC = cf + vcv
Total revenue = volume x price
TR = vp
Profit = total revenue - total cost
Z = TR – TC = vp - (cf + vcv)
cf = fixed cost
V = volume (i.e., number of units produced and sold)
cv = variable cost per unit
p = price per unit
Copyright ©2017 John Wiley & Sons, Inc. 6-12
Process Selection With
Break-Even Analysis
TR = TC
vp = cf + vcv
vp - vcv = cf
v(p - cv) = cf
cf
v= p-c
v
Solving for Break-Even Point (Volume)
Copyright ©2017 John Wiley & Sons, Inc. 6-13
Break-Even Analysis
Fixed cost = cf = $2,000
Variable cost = cv = $50 per unit
Price = p = $100 per unit
Break-even point is
cf
v= p-c =
v
Copyright ©2017 John Wiley & Sons, Inc. 6-14
Break-Even Analysis
Fixed cost = cf = $2,000
Variable cost = cv = $50 per unit
Price = p = $100 per unit
Break-even point is
cf 2000
v= p-c = = 40 units
v 100 - 50
Copyright ©2017 John Wiley & Sons, Inc. 6-15
Break-Even Analysis: Graph
Dollars
$3,000 — Total
cost
line
$2,000 —
$1,000 —
Total
revenue
line
40 Units
Break-even point
Copyright ©2017 John Wiley & Sons, Inc. 6-16
Process Selection – Multiple Processes
Process A Process B
$2,000 + $50v = $10,000 + $30v
Copyright ©2017 John Wiley & Sons, Inc. 6-17
Process Selection – Multiple Processes
Process A Process B
$2,000 + $50v = $10,000 + $30v
$20v = $8,000
v = 400 units
Below or equal to 400, choose A
Above or equal to 400, choose B
Copyright ©2017 John Wiley & Sons, Inc. 6-18
Multiple Processes – Indifference Point
Copyright ©2017 John Wiley & Sons, Inc. 6-19
Process Selection in Excel
Copyright ©2017 John Wiley & Sons, Inc. 6-20
Process Plans
• Set of documents that detail manufacturing and
service delivery specifications
• assembly charts
• operations sheets
• quality-control check-sheets
Copyright ©2017 John Wiley & Sons, Inc. 6-21
Assembly Chart
Copyright ©2017 John Wiley & Sons, Inc. 6-22
Process Analysis
• Systematic study of all aspects of a process
• make it faster
• more efficient
• less costly
• more responsive
• Basic tools
• process flowcharts
• diagrams
• maps
Copyright ©2017 John Wiley & Sons, Inc. 6-23
Operations Sheet for a Plastic Part
Part name Crevice Tool
Part No. 52074
Usage Hand-Vac
Assembly No. 520
Oper. No. Description Dept. Machine/Tools Time
10 Pour in plastic bits 041 Injection molding 2 min
20 Insert mold 041 #076 2 min
30 Check settings 041 113, 67, 650 20 min
& start machine
40 Collect parts & lay flat 051 Plastics finishing 10 min
50 Remove & clean mold 042 Parts washer 15 min
60 Break off rough edges 051 Plastics finishing 10 min
Copyright ©2017 John Wiley & Sons, Inc. 6-24
Flow Charts in Microsoft Visio
Copyright ©2017 John Wiley & Sons, Inc. 6-25
The Process of Building a Flowchart
• Determine objectives
• Define process boundaries
• Define units of flow
• Choose type of chart
• Observe process and collect data
• Map out process
• Validate chart
Copyright ©2017 John Wiley & Sons, Inc. 6-26
Process Flowcharts
• Look at manufacture of product or delivery of
service from broad perspective
• Incorporate
• nonproductive activities (inspection, transportation,
delay, storage)
• productive activities (operations)
Copyright ©2017 John Wiley & Sons, Inc. 6-27
Process Flowchart of Apple Processing
Copyright ©2017 John Wiley & Sons, Inc. 6-28
Microsoft Visio Flowcharts
Copyright ©2017 John Wiley & Sons, Inc. 6-29
Flowcharts in Excel
Copyright ©2017 John Wiley & Sons, Inc. 6-30
Process Map
or Swimlane
Chart of
Restaurant
Service
Copyright ©2017 John Wiley & Sons, Inc. 6-31
Simple Value Chain Flowchart
Copyright ©2017 John Wiley & Sons, Inc. 6-32
Continuous Improvements and Breakthroughs
Continuous
improvement refines
the breakthrough
Breakthrough
improvement
Continuous improvement
activities peak; time to
reengineer process
Copyright ©2017 John Wiley & Sons, Inc. 6-33
From Function to Process
Product Development
Manufacturing
Purchasing
Accounting
Order Fulfillment
Sales
Supply Chain Management
Customer Service
Function Process
Copyright ©2017 John Wiley & Sons, Inc. 6-34
Process Strategic
Innovation Directives
Baseline Data
Customer Goals for Process Benchmark
Requirements Performance
Data
High - level Innovative
Process map Ideas Design
Principles
Detailed Model
Process Map Validation Key
Performance
Measures
Pilot Study
of New Design
Goals Full Scale
No Met? Yes Implementation
Copyright ©2017 John Wiley & Sons, Inc. 6-35
High-Level Process Map
Copyright ©2017 John Wiley & Sons, Inc. 6-36
Principles for Redesigning Processes
• Remove waste, simplify, and consolidate similar activities
• Link processes to create value
• Let the swiftest and most capable enterprise execute the
process
• Flex process for any time, any place, any way
• Capture information digitally at the source and propagate it
through process
• Provide visibility through fresher and richer information about
process status
• Fit process with sensors and feedback loops that can prompt
action
• Add analytic capabilities to the process
• Connect, collect, and create knowledge around process
through all who touch it
• Personalize process with preferences and habits of participants
Copyright ©2017 John Wiley & Sons, Inc. 6-37
Techniques for Generating
Innovative Ideas
• Vary the entry point to a problem
• in trying to untangle fishing lines, it’s best to start from the fish, not the
poles
• Draw analogies
• a previous solution to an old problem might work
• Change your perspective
• think like a customer
• bring in persons who have no knowledge of process
• Try inverse brainstorming
• what would increase cost?
• what would displease the customer?
• Chain forward as far as possible
• if I solve this problem, what is the next problem?
• Use attribute brainstorming
• how would this process operate if. . .
• our workers were mobile and flexible?
• there were no monetary constraints?
• we had perfect knowledge?
Copyright ©2017 John Wiley & Sons, Inc. 6-38
Financial Justification of Technology
• Purchase cost
• Includes add-ons to make technology work
• Operating Costs
• Visualize how the technology will be used
• Annual Savings
• Better quality and efficiency save money
• Revenue Enhancement
• New technology can enhance revenue
• Replacement Analysis
• When to upgrade to new technology depends on competitive
environment
• Risk and Uncertainty
• Investment in new technology can be risky
• Piecemeal Analysis
• Make sure new and existing technology are compatible
Copyright ©2017 John Wiley & Sons, Inc. 6-39
Components of a Digital Transformation
Copyright ©2017 John Wiley & Sons, Inc. 6-40
Product Technology
Copyright ©2017 John Wiley & Sons, Inc. 6-41
Process Technology
Copyright ©2017 John Wiley & Sons, Inc. 6-42
Manufacturing Technology
Copyright ©2017 John Wiley & Sons, Inc. 6-43
Information Technology
Copyright ©2017 John Wiley & Sons, Inc. 6-44
