Operations Management

ADMN3046

Professor: Bob Carpenter

Today’s Agenda

• Capacity
• Questions from Chapter 5
• Process design
• Layout
Chapter 5 Outline

A. What is capacity?
B. Measuring capacity
C. Factors influencing capacity
D. Developing capacity
alternatives
E. Planning service capacity
F. Evaluating alternatives
What is capacity?

• Capacity is the upper limit or

ceiling on the load that an
operating unit can handle.
• The basic questions in capacity
handling are:
– What kind of capacity is needed?
– How much is needed?
– When is it needed?
Importance of capacity decisions

1. Impacts ability to meet future

demands
2. Affects operating costs
3. Major determinant of initial costs
4. Involves long-term commitment
5. Affects competitiveness
Measuring capacity

• Design capacity
– maximum obtainable output
• Effective capacity
– Maximum capacity given product
mix, scheduling difficulties, and
other doses of reality.
• Actual output
– rate of output actually achieved--
cannot exceed effective capacity.
B. Efficiency and Utilization

Actual Output
Efficiency 
Effective Capacity
Actual Output
Utilization 
Design Capacity
Efficiency/Utilization Example

Design capacity = 50 trucks/day

Effective capacity = 40 trucks/day
Actual output = 36 units/day

Actual Output 36 units day

Efficiency   90%
Effective Capacity 40units/day
Actual Output 36 units day
Utilization   72%
Design Capacity 50units/day
Factors Influencing Capacity

• Facilities
– Floor space, layout
• Products or services
– Limited menu in a restaurant
• Human
– Training, skills and experience
• Planning and Operational
– No of shifts per day, inventory, quality
control
• External
– Pollution standards, paper work
Capacity planning process

1. Forecast demand one to five years ahead

2. Determine capacity requirements
3. Measure the capacity now and decide how
to bridge the gap
a) Generate feasible alternatives
b) Evaluate alternatives considering
economic and non economic aspects
c) Choose the best alternative and
implement it
C. Some Possible Growth Patterns
Volume

Volume
Growth Decline

0 Time 0 Time

Cyclical Stable
Volume

Volume

0 0
Time Time
Calculating Processing Requirements

A department works one eight hour shift, 250 days a year, and has
these figures for products, their demand, and usage of a type of
machine that is currently being considered. How many machines
would be needed to handle the required volume?

Product Annual Standard Processing Processing time

Demand time per unit (hr.) needed (hr.)
#1 400 5.0 2,000
#2 300 8.0 2,400
#3 700 2.0 1,400
Calculating Processing Requirements

8 250 2,000 machine hours per year

2,000  2,400  1,400
3 machines
2,000
D. Developing Capacity Alternatives

1. Design flexibility into systems

2. Differentiate between new and mature
products or services
3. Take a “big picture” approach to
capacity changes
4. Prepare to deal with capacity “chunks”
5. Attempt to smooth out capacity
requirements
6. Use capacity cushion
7. Identify the optimal operating level
 Minimum cost & optimal operating rate are
functions of size of production unit.
Average cost

Small
plant Medium
per unit

plant Large
plant

0 Output rate
Planning Service Capacity

• Need to be near customers

– Capacity and location are closely tied
• Inability to store services
– Capacity must me matched with timing
of demand
• Degree of volatility of demand
– Peak demand periods
Evaluating alternatives
• Economic considerations
– Cost, useful life, compatibility,
revenue
• Non economic considerations
– Public opinion, reactions from
employees, community pressure
• Techniques used for evaluation:
a) Break Even Analysis
b) Financial Analysis
c) Decision Theory
d) Waiting line Analysis
Break Even Analysis

TC FC  VC TC Total Cost

FC Total Fixed Cost
VC Q v
VC Total Variable Cost
TR Q r TR Total Revenue
P TR  TC Q r  FC  Q v  v variable cost per unit
FC r revenue per unit
QBEP  Q volume of output
r v
QBEP break even volume
P profit
Break Even Chart
Cost in Dollars

Total revenue line

Breakeven point Profit

Total cost = Total revenue
Total cost line

Variable cost

$ BEP
Loss Fixed cost

Volume (units/period)
QBEP
Break-Even Problem with Step Fixed Costs

$ BEP3

BEP2
TC
TC
3
TC
2
TR 1
Quantity

Multiple break-even points

Assumptions of Break Even Analysis

• One product is involved

• Everything produced can be sold
• Variable cost per unit is the same
regardless of volume
• Fixed costs do not change with volume
• Revenue per unit constant with volume
• Revenue per unit exceeds variable cost
per unit
Financial Analysis
• Cash Flow
– the difference between cash received from
sales and other sources, and cash outflow
for labour, material, overhead, and taxes.
• Present Value
– the sum, in current value, of all future cash
flows of an investment proposal.
• The three most used methods of financial
analysis are
– Payback period
– Net present value (NPV)
– Internal rate of return (IRR)
Assignment
• Read Chapter 6 Process Design and
Capacity Layout
• Question 5 page 177 and 12 Page
178
Chapter 6 Outline
A. Process Types
B. Automation
C. Process Design
D. Layout Design and Types of
Layout
E. Designing Product Layouts:
• Line balancing
F. Designing Process Layouts
• Minimizing transportation cost
A. Process Selection and System Design

• Process Selection depends

on:
– Variety (how much?)
– Flexibility (what degree?)
– Volume (expected output)
A. Process Selection and System Design

Capacity
Capacity
Forecasting planning
planning
Forecasting
Facilities
Facilitiesand
and
Process
Process Equipment
Equipment
Product
Productand
and selection
selection
service
servicedesign
design
Layout
Layout
Technological
Technological Work
Work
change
change design
design
A. Process Design

Process Design refers to how

production of goods and
services is to occur.
A. Process Types
1. Job Shop
• Low volume, high variety, small runs, intermittent
processing, high flexibility of equipment, skilled
workers, high variable cost per unit, low fixed costs,
complex scheduling, high WIP inventory
2. Batch
• Moderate volume, moderate variety, less flexible
equipment and less skilful workers that in a job shop
environment
3. Repetitive (Assembly line)
• Semi continuous, slight flexibility of the equipment,
skill of workers is low, routine scheduling, low WIP
inventory
4. Continuous
• High volume, highly standardized equipment, high
fixed costs, low variable costs, low WIP inventory
A. Process Types
Product High Moderat Low Very low
variety e
Equipment High Moderat Low Very low
flexibility e
Low Job

Quality
Flexibility
volume Shop
(springs
)
Moderate Batch
volume (furnitur
e)
High Repetitive

Cost
Dependabilit
volume (cars,
trucks)
Very high Continuous
volume Flow (steel,
paper,
B. Automation

Automation: Machinery that has sensing and control

devices that enables it to operate automatically
B. Automation
1. Fixed automation
• Very rigid, uses high cost, specialized equipment for a
fixed sequence of operations
2. Programmable automation
• Uses general purpose equipment controlled by a
computer program
• Numerically Controlled Machines: CNC, DNC, robots
3. Flexible Automation
• Uses equipment that is more customized than that of
programmable automation
• Computer-aided design and manufacturing systems
(CAD/CAM), Flexible manufacturing systems (FMS),
Computer-integrated manufacturing (CIM)
C. Process Design

Process Design: identifying the activities,

resources, and controls needed in the production
process.
C. Process Design
1. Define the production process (process planning)
• Make or buy decision, set production system
objectives: capacity, type of process, cost, technology
2. Conceptual design
• Develop a few alternative process concepts
(sketches, flow diagrams), evaluate each alternative
and choose the best
3. Embodiment design
• Build a prototype process, refine the process design
and reevaluate it
4. Detailed design
• Determine the machines, equipment, and plant
layout
Process flow chart

• List the inputs and outputs for a

shirt manufacturing process.
• Show the flow of work through
transformation in a diagram.
• List the tasks and show precedences
C. Service Process Design

Services are especially vulnerable to quality and delivery

problems because the customer is present during service
delivery and there is little time to fix any problems then.
C. Service Process Design

• Some of the suggestions to improve

customer satisfaction in services:
– Do not raise customer expectations too
much at the beginning
– End the service positively
– If the service is pleasurable divide it into
segments
– Let customers control part of the process
– Communicate evidence of quality to
customers
Service Process

• List the inputs and outputs fro

University admission
• Draw a process flow chart for the
admission of students to University.
• Identify precedences
 D. Layout Design

• Layout decisions are important for

three basic reasons:
1. They require substantial investments
of money and effort
2. They involve long term commitments
3. They have a significant impact on the
cost and efficiency of operations
D. Basic layout types

Layout: the configuration of departments, work centers, and

equipment, with particular emphasis on movement of work
(customers or materials) through the system
D. Basic layout types
1. Product layout
• Uses standardized processing operations to achieve
smooth, rapid, high volume flow
2. Process layout
• Layouts that can handle varied processing requirements
• Cellular layouts
3. Fixed position
• Layout in which the product or project remains
stationary, and workers, materials, and equipment are
moved as needed
4. Combination layout
 D1. Product layout

Flow Shop or Assembly Line Work Flow

Work flow

Raw
materials Station Station Station Station Finished
item
or 1 2 3 4
customer

Material Material Material Material

and/or and/or and/or and/or

labour labour labour labour
D2. Process layout

• Intermittent processing
• General purpose equipment
• Low equipment utilization
• Hospitals, colleges, machine
shop
D2. Process layout

Job shop or batch

Dept Dept Dept

A B C

Dept Dept Dept

D E F
D2. Cellular Layout

• Manufacturing cell
• Layout in which machines are grouped
into a cell that can process items that
have similar processing requirements
• Group technology
• The grouping into part families of items
with similar design (size, shape and
function) or manufacturing (type and
sequence of operations required)
characteristics
 D2. Cellular Layout

In 1 2 3 4
5
A U-Shaped Workers
Production Line
6
Out 10 9 8 7
D2. Comparison of functional and cell layouts

Functional Layout

222 222 222

111 Drill Grind
444 Mill 333

222
444

Assembly
33
111

333

111

222
3

44
4
333

111 111
Heat 111 Gear
333 Lathes
treat cutting 444
Cellular Layout

Lathe Heat Gear

111 Mill Drill 111
treat cut

Heat
222 Mill Drill Grind 222
treat

Assembly
Heat 333
333 Lathe Mill Grind
treat

444 Mill Drill Gear 444

cut
D. Other layout types
• Warehouse and storage layouts
– Important consideration: frequency of
order
• Retail layouts
– Important consideration: traffic flow
• Office layouts
– Objective: optimize the physical transfer
of information or paperwork
– New trend: create an image of openness
(low rise partitions)
D. The Need for Layout Decisions

• Inefficient operations (High Cost

Bottlenecks)
• Changes in the design of products or
services
• The introduction of new products or services
• Accidents (safety hazards)
• Changes in environmental or other legal
requirements
• Changes in volume of output or mix of
products
• Changes in methods and equipment
• Morale problems
E. Design Product Layouts: Line Balancing
• Line Balancing
– is the process of assigning tasks to
workstations in such a way that the
workstations have approximately equal time
requirements
• Issues
1. Difficulty of forming task bundles that have
the same duration
2. Differences among elemental task lengths
cannot always be overcome by grouping tasks
3. Technological sequence may prohibit
otherwise desirable task combinations
E. Design Product Layouts: Line Balancing

• Cycle time
– is the maximum time allowed at each
workstation to complete its set of
tasks on a unit
E. Line Balancing Formulas

OT OT
Output capacity  CT 
CT D
OT operating time per day D desired output rate
CT cycle time
E. Line Balancing Formulas

N min 
 t
CT
N min Theoretical minimum number of work stations
 t sum of the task times
 E. Precedence Network

Precedence network: A diagram that shows elemental tasks and

their precedence requirements
 E. Precedence Network

0.1 min. 1.0 min.

A Simple
a b Precedence
Diagram

c d e
0.7 min. 0.5 min. 0.2 min.
 E. Sample Problem

Arrange tasks shown in the previous slide into workstations.

Use a cycle time of 1.0 minute. Assign tasks in order of the
most number of followers.
E. Sample Problem

Work Time Eligible Will fit Assign Idle

station left task time
(time)
1 1.0 a,c a, c a (0.1)
0.9 b,c c c (0.7)
0.2 b - 0.2
2 1.0 b b b (1.0)
0.0 d - 0.0
3 1.0 d d d (0.5)
0.5 e e e (0.2)
0.3 - - 0.3
0.5
E. Line Balancing Rules
Some Heuristic (intuitive) Rules:
• Assign the task with longest time
• Assign the task with the most
followers

Percentage of idle time 

 Idle time 100
N actual Cycle time
Efficiency 100 - Percentage of idle time
E. Sample Problem

WS 1 WS 2

0.1 min. 1.0 min.

a b
WS 3

c d e
0.7 min. 0.5 min. 0.2 min.
E. Sample Problem

% of idle time 
 Idle time 100 
0.5
100 16.7%
N actual Cycle time 3 1.0
efficiency 100%  16.7% 83.3%
Cycle Time

Cycle time is the maximum time

allowed at each workstation to
complete its set of tasks on a unit.
Determine Maximum Output
OOTT
OOuutp
tpuutt ccaappaaccity
ity ==
CCTT

OOTT  ooppeera
ratin
tingg tim
timee ppeerr ddaayy

DD == DDeessire
iredd oouutp
tpuutt ra
rate
te

OOTT
CCTT == ccyc
ycle
le tim
timee ==
DD
Determine the Minimum Number
of Workstations Required: Efficiency

N min =
t
CT

 t = sum of task times

Assembly Steps and Times for Model J Wagon
Precedence Graph for Model J Wagon
A Balance Made According to
Largest Number of Following Tasks Rule
Precedence Graph for Model J Wagon
Efficiency Calculation

S
Efficiency 
NT
195
Efficiency  0.77, or 77%
550.4
Matching task time to cycle time:
1. Split the task
2. Duplicate the station
3. Share the task
4. Use a more skilled worker
5. Work overtime
6. Redesign the product
E. Other factors important in line balancing

• Skill requirements of different tasks

• Task completion times are variable
• Solutions to the task random times:
1. Reduce the randomness by designing the jobs
better, by using high quality material, and by
doing preventive maintenance
2. Use buffer inventory between work stations
3. Leave some idle time in workstations which
have random times
4. Use parallel work stations
 E. Parallel Workstations

30/hr. 30/hr. 30/hr. 30/hr.

1 min. 1 min. 2 min. 1 min.

Bottleneck

30/hr. 1 min. 30/hr.

60/hr. 60/hr.
1 min. 1 min. 1 min.
30/hr.
1 min. 30/hr.

Parallel Workstations
F. Designing Process Layouts

• Information requirements:
– List of departments
– Projection of work flows
– Distance between locations
– List of special considerations
 F. Minimizing cost - Sample problem
Distance Work flow (loads per day)
From/ A B C From/ 1 2 3
To To
A - 20 40 1 - 10 80
B 20 - 30 2 20 - 30
C 40 30 - 3 90 70 -
• Heuristic:
– Assign the pair of departments with the
greatest interdepartmental work flow to
locations that are closest to each other
F. Minimizing cost - Sample problem

30

170 100
1 3 2

Dept 1 Dept 2 Dept 3

A B C
F. Minimizing cost - Sample problem

From/To Loads Distanc Loads X Distance

e
1-2 10 40 400
1-3 80 20 1,600
2-1 20 40 800
2-3 30 30 900
3-1 90 20 1,800
3-2 70 30 2,100
Total 7,600
Minimizing Handling/Movement Costs
in Process and Office Environments
Process Layout

222 222 222

111 Drill Grind
Mill

22
444 3333

222
444

1111 2222 Assembly

33
33

44
111 333
33

44
333
33

4
111

333
3

111
Heat 111 Gear
333 Lathes
treat cutting 444
Estimate cost of move between each
department.

Say, $1 per square

Interdepartmental Flow
Interdepartmental Flow Graph with
Number of Annual Movements
Cost Matrix—First Solution
Building Dimensions and Departments

Exhibit 8.3
Revised Building Layout

Exhibit 8.8
Revised Interdepartmental Flowchart*
Cost Matrix—Second Solution
Assignment

• Read Chapter 7 Design of Work

Systems