Chapter 7

A firm is about to undertake the manufacture of a product, and it is weighing the process configuration options. There are two intermittent processes under consideration, as well as a repetitive focus. The smaller intermittent process has fixed costs of $3,000 per month and variable costs of $10 per unit. The larger intermittent process has fixed costs of $12,000 per month and variable costs of $2 per unit. A repetitive focus plant has fixed costs of $50,000 per month and variable costs of $1 per unit. a. At what output does the large intermittent process become cheaper than the small one? b. At what output does the repetitive process become cheaper than the larger intermittent process?

(a) at 1125 units, the large job shop becomes cheaper than the small job shop; (b) at 38,000 units, the repetitive shop is cheaper than the larger job shop.

An organization is considering three process configuration options. There are two different intermittent processes, as well as a repetitive focus. The smaller intermittent process has fixed costs of $3,000 per month and variable costs of $10 per unit. The larger intermittent process has fixed costs of $12,000 per month and variable costs of $2 per unit. A repetitive focus plant has fixed costs of $50,000 per month and variable costs of $1 per unit. a. If the company produced 20,000 units, what would be its cost under each of the three choices? b. Which process offers the lowest cost to produce 40,000 units? What is that cost?

(a) at 20,000 units, the costs are: small intermittent = $203,000; large intermittent = $52,000; and repetitive = $70,000 (b) at 40,000 units, repetitive process is cheapest, at $90,000 (small intermittent = $403,000, and large intermittent = $92,000).

The local convenience store makes personal pan pizzas. Currently, its process makes complete pizzas, fully cooked, for the customer. This process has a fixed cost of $20,000, and a variable cost of $1.75 per pizza. The owner is considering a different process that can make pizzas in two ways: completely cooked (as before), or partially cooked and then flash frozen for the customer to finish heating at home. This alternate process has a fixed cost of $24,000, but a lower variable cost (because much less energy is used in baking) of $1.25 per pizza. a. What is the crossover point between the existing process and the proposed process? b. If the owner expects to sell 9,000 pizzas, should he get the new oven?

(a) the crossover is 8,000 units (b) for production quantities of 8,000 or larger, the new, more flexible process has a lower cost.

Big John's Manufacturing currently produces its lead product on a machine that has a variable cost of $0.32 per unit, and fixed costs of $75,000. Big John is considering purchasing a new machine that would drop the variable cost to $.28 per unit, but has fixed costs of $150,000. What is the cross-over point between the two machines?

1,875,000 units

A non-profit organization is planning a raffle to raise money. It has two options for tickets. The first option is to do the tickets by hand, with fixed costs of $50 and variable costs of $.05 per ticket. The second option is to outsource production. This would result in fixed costs of $500 and variable costs of $.01. If the organization plans to sell 10,000 tickets which option should it choose?

50 + .05V = 500 + .01V, V = 11,250 tickets (students may solve for the cross-over point and realize higher VC option is cheaper at 10,000 since it is below the cross-over point). Another viable method is to find the cost for each option, yielding Option 1 = 50 + .05(10,000) = $550 and Option 2 = 500 + .01(10,000) = $600. Thus the organization should choose the first option.

Brandon's computer shop is considering two different configuration options. The first one is to have each computer built by the sales associates when they have free time. The second option is to hire a dedicated assembly technician. Option A has variable costs of $50 per computer and no fixed costs. Option B has a fixed cost of $1,000 but variable costs of only $5 per computer. What is the cross-over point?

50V = 1000 + 5V, V (cross-over point) = 22.2 computers

Identify the five major tools of process analysis and design. Describe them in a sentence or two each.

A flowchart is a schematic or drawing of the movement of material, product, or people. Time-function mapping is a flow chart, with the addition of time on the horizontal axis. Value-stream mapping shows how to add value in the flow of materials and information through the entire production process. Process charts use symbols, time, and distance to provide an objective and structured way to analyze and record the activities that make up a process. Service blueprinting focuses on the customer and the provider's interaction with the customer.

Process A has fixed costs of $1000 and variable costs of $5 per unit. Process B has fixed costs of $500 and variable costs of $15 per unit. What is the crossover point between process A and process B?

A) 50 units

Which of the following products is likely to be assembled on a repetitive process line?

A) automobiles

Computer-integrated manufacturing (CIM) includes manufacturing systems that have:

A) computer-aided design, a flexible manufacturing system, inventory control, warehousing and shipping integrated.

What is a drawing of the movement of material, product, or people?

A) flowchart

Which of the following phrases best describes process focus?

A) low volume, high variety

Align Technology uses a ________ approach to produce clear plastic removable aligners.

A) mass customization

The use of information technology to monitor and control a physical process is known as:

A) process control.

Goods made to order are typical of ________ and ________ approaches while goods made to forecast are typical of ________ and ________ approaches.

A) process, mass customization; repetitive, product

Which of the following are all strategies for improving productivity in services?

A) separation, self-service, automation, and scheduling

________ is a computer-controlled warehouse that provides for the automatic placement of parts into and from designated places within the warehouse.

Automated storage and retrieval system or ASRS

Which of the following characteristics best describes repetitive focus?

B) Its output is a standardized product produced from modules.

Which of the following is FALSE regarding repetitive processes?

B) They allow easy switching from one product to the other.

Which one of the following products is most likely made in a job shop environment?

B) paper forms

Frito-Lay is to ________ focus as Harley Davidson is to ________ focus.

B) product, repetitive

Process X has fixed costs of $10,000 and variable costs of $2.40 per unit. Process Y has fixed costs of $9,000 and variable costs of $2.25 per unit. Which of the following statements is TRUE?

C) Process Y is cheaper than process X at all volumes.

A system using an automated work cell controlled by electronic signals from a common centralized computer facility is called:

C) a flexible manufacturing system.

Product focused processes:

C) are processes that are specialized for relatively few products or customer groups.

"Operators simply load new programs, as necessary, to produce different products" describes:

C) flexible manufacturing systems.

A product-focused process is commonly used to produce:

C) high-volume, low-variety products.

Three of the four types of processes are:

C) process focus, repetitive focus, and product focus.

An assembly line is an example of a:

C) repetitive process.

One fundamental difference between a process chart and a flowchart is that:

C) the process chart is more like a table, while the flowchart is more like a schematic diagram.

Which one of the following technologies is used ONLY for material handling, NOT actual production or assembly?

D) AGVs

Which of the following provides automatic placement and withdrawal of parts and products into and from designated places in a warehouse?

D) ASRS

Which of the following is TRUE regarding vision systems?

D) All of the above are true.

Which of the following is true regarding the concept of flexibility?

D) All of the above are true.

Which of the following technologies could enable a cashier to scan the entire contents of a shopping cart in seconds?

D) RFID

Service blueprinting:

D) focuses on the provider's interaction with the customer.

Which of the following phrases best describes product focus?

D) high fixed costs, low variable costs

In mass service and professional service, the operations manager should focus extensively on:

D) human resources.

A job shop is an example of a(n):

D) intermittent process.

Arnold Palmer Hospital uses which focus?

D) mass customization

One of the similarities between process focus and mass-customization is:

D) the variety of outputs.

The crossover point is that production quantity where:

D) total costs for one process equal total costs for another process.

Harley Davidson:

D) uses work cells to feed its assembly line.

Which of the following companies use a mass customization approach?

E) A and B

High fixed costs and low variable costs are typical of which approach?

E) A and C

A quasi-custom product:

E) All but D are true.

Value-stream mapping:

E) All of the above are true.

In the mass service and service factory quadrants of the service process matrix, the operations manager could focus on all of the following except:

E) customization.

What have restaurants such as Steakhouses and Stacked Restaurants replaced their traditional paper menus with?

E) iPad menus

Which of the following is not one of the strategies for improving service productivity?

E) mass customization

Which of the following industries is most likely to have low equipment utilization?

E) restaurants

A flowchart with the addition of a time axis becomes a process chart.

FALSE

Activity times should not be included in a service blueprint.

FALSE

An example of the postponement strategy for improving service productivity is having the customer wait until you have sufficient time to serve the customer.

FALSE

Flowcharts use distance, but not time, to show the movement of material, product, or people through a process.

FALSE

Harley-Davidson, because it has so many possible combinations of products, utilizes the process strategy of mass customization.

FALSE

Professional services typically require low levels of labor intensity.

FALSE

The typical full-service restaurant uses a product-focused process.

FALSE

________ involves the ability to respond with little penalty in time, cost, or customer value.

Flexibility

Why do modern operations managers look for flexibility in their equipment?

Flexibility in equipment provides managers with the ability to respond to changes in demand with little penalty in time, cost, or customer value. And in this age of rapid technological change and short product life cycles, adding flexibility to the production process can be a major competitive advantage.

________ represent an organization's attempt to gain increased efficiency through specialization, which can include, for example, concentrating on certain classes of customers.

Focused processes

What is the link between focused processes and specialization? What kinds of focus are possible?

Focused processes are a means of obtaining increased productivity through forms of specialization. Focus can take several forms, including concentrating on specific classes of customers, working only with products in selected product families, specializing in a specific service, or working with a narrow range of technology.

In an affluent society, how do we produce a wide number of options for products at low cost?

For mass customization, products should be built-to-order. Product design must be imaginative. Process design must be flexible and able to accommodate changes in both design and technology. Inventory management requires tight control. Tight schedules are needed that track orders and material from design through delivery. Responsive partners in the supply chain can yield effective collaboration.

Kirstin is thinking about opening a Chinese restaurant and needs to buy a rice cooker. Machine A has fixed costs of $100 and variable costs of $1/pound. Machine B has fixed costs of $500 and variable costs of $.1/pound. If Kirstin plans to sell 100 pounds of rice, which machine should she choose? What is the cross-over point?

Machine A costs 100 + 1(100) = $200 Machine B costs $500 + .1(100) = $510 Thus she should buy machine A. Crossover occurs when 100+V = 500 + .1V, or V = 444.4 pounds of rice

________ is a rapid, low-cost production process that caters to constantly changing unique customer desires.

Mass customization

What is mass customization?

Mass customization is rapid, low-cost production of goods and services that fulfill increasingly unique customer desires. It brings us the variety of products traditionally provided by the process focus, with low costs associated with standardized high volume production (the product focus).

How are modules useful in manufacturing processes?

Modules are parts or components of a product previously prepared. By using modules, the final product can be quickly assembled. Using a different combination of modules allows for quasi-customization.

A product is currently made in a process-focused shop, where fixed costs are $8,000 per year and variable cost is $40 per unit. The firm currently sells 200 units of the product at $200 per unit. A manager is considering a repetitive focus to lower costs (and lower prices, thus raising demand). The costs of this proposed shop are fixed costs = $24,000 per year and variable cost = $10 per unit. If a price of $80 will allow 400 units to be sold, what profit (or loss) can this proposed new process expect? Do you anticipate that the manager will want to change the process? Explain.

Old: TR = $40,000, TC = $16,000, therefore Profit = $24,000. New: TR = $80 × 400 = $32,000, TC = $24,000 + $10 × 400 = $28,000, for a profit of $4,000. The manager should not change. The larger repetitive process is less profitable than the smaller process-focused shop.

Karla's candle factory is considering two different manufacturing options. Option A is highly automated with fixed costs of $25,000 and variable costs of $.1/candle. Option B uses hand labor with fixed costs of $10,000 and variable costs of $.5/candle. If demand for Karla's candles is 25,000, which option should she pick?

Option A: $25,000 + .1(25,000) = $27,500 Option B: $10,000 + .5(25,000) = $22,500 Karla should pick Option B

Bridget is considering how to get to work over the summer. She has two options. Option A is to buy a seasonal bus pass for $100. Option B is to pay $.25 for each ride. Identify the fixed and variable costs for each option. If she has to ride both to and from work, how many days of work would it take for the seasonal pass to cost the same amount as Option B?

Option A: VC = 0 FC = 100 Option B: VC = .25 FC= 0 100 = .25V, V = 400 rides, since she has to take 2 rides each time she works, she would need to work 200 days for the two options to cost the same amount.

________ is the use of information technology to control a physical process.

Process control

Identify the four basic process strategies, and describe them in a complete sentence or two each.

Process focus is a job shop—high variety and low volume; repetitive focus is an assembly line—relatively standardized products with options from modules; product focus is for high volume, low-variety, products, such as oil refining and flour milling; and mass customization is for high volume, high variety.

________ is a process strategy based on a product-oriented production process that uses modules.

Repetitive focus

Identify the typical elements in a process control system.

Sensors collect data, which are read on a periodic basis. Measurements are digitized and transmitted to a computer. Computer programs read the file and analyze the data. Output is produced in the form of signals, diagrams, charts, messages, etc.

________ is a process analysis technique that focuses on the customer and the producer's interaction with the customer.

Service blueprinting

A firm's process strategy is its approach to transforming resources into goods and services.

TRUE

A value-stream map includes both (1) inventory quantities, and (2) symbols for customers and suppliers.

TRUE

Automated storage and retrieval systems are commonly used in distribution facilities of retailers.

TRUE

Flexible manufacturing systems, because of easily changed control programs, are able to perform such tasks as manufacturing one-of-a-kind parts economically.

TRUE

In process-focused facilities, utilization of facilities is low.

TRUE

Intermittent processes are organized around processes.

TRUE

One use of camera-and-computer-based vision systems is to replace humans doing tedious and error-prone visual inspection activities.

TRUE

Process control is the use of information technology to monitor and control a physical process.

TRUE

Service blueprinting is a process analysis technique that focuses on the customer and the provider's interaction with the customer.

TRUE

The assembly line is a classic example of a repetitive process.

TRUE

The term focused processes refers to the quest for increased efficiency, whether in goods or services, that results from specialization.

TRUE

The tool that calculates which process has the lowest cost at any specified production volume is a crossover chart.

TRUE

Time-function mapping is a flowchart with time added to the horizontal axis.

TRUE

When selecting new equipment and technology, decision makers look for flexibility—the ability to respond with little penalty in time, cost, or customer value.

TRUE

Mary is considering purchasing a machine from one of two suppliers. Supplier A's machine has an annual fixed cost of $10,000 and a unit variable cost of $2.10. Supplier B's machine has an annual fixed cost of $16,000 and a unit variable cost of $3.00. How large should Mary's annual demand be in order to make Supplier B's machine the better choice?

The answer is that there is no demand for which Supplier B's machine will be better. Both Supplier B's fixed and variable costs are higher than Supplier A's.

A product is currently made in a process-focused shop, where fixed costs are $9,000 per year and variable costs are $50 per unit. The firm is considering a fundamental shift in process, to repetitive manufacturing. The new process would have fixed costs of $90,000, and variable costs of $5. What is the crossover point for these processes? For what range of outputs is each process appropriate?

The crossover is at 1800 units annually. For volumes under 1800, the process focus is cheaper; for volumes over 1800 units, the repetitive focus is cheaper.

Provide an example of the focus strategy for improving service productivity.

The focus strategy refers to restricting the offerings. Examples will vary, but a restaurant with a limited menu would be one example.

Provide an example of the postponement strategy for improving service productivity.

The postponement strategy refers to customizing the product at delivery, not at production. Examples will vary, but a home builder might leave some tasks unfinished until the house is sold, so that the buyer can make those final decisions. Carpeting, paint colors, cabinet doors, and some appliance choices might be good examples. Another example would be cars or vans.

Describe Value-stream mapping. Explain how it is different from process mapping.

Value-stream mapping is a variation on time-function mapping or process mapping. The most fundamental difference between them is that Value-stream mapping is not confined to the organization itself. In particular, in its analysis of where value is added, it extends the analysis to the organization's supply chain. Value-stream mapping takes into account not only the process but also the management decisions and information systems that support the process.

Why is Harley-Davidson identified as a repetitive manufacturer, not a mass customizer?

While Harley-Davidson's motorcycles variety, they are not as individualized as Dell's personal computers. The variety comes from choices in predefined modules, and there is apparently no place for a customer to get customization that would go beyond what is available in these modules.

A(n) ________ uses an automated work cell controlled by electronic signals from a common centralized computer facility.

flexible manufacturing system or FMS

A(n) ________ uses symbols to analyze the movement of people or material.

flowchart

The strategy for improving service productivity that customizes at delivery, rather than at production, is ________.

postponement

The process strategy that is organized around processes to facilitate low-volume, high-variety processes is called a(n) ________.

process focus

An organization's approach to transforming resources into goods and services is called its ________.

process strategy

A special form of time-function mapping, which goes beyond the organization into its supply chain, is ________.

value-stream mapping