Operations and Supply Chain Management
What quantitative factors might influence service location decisions?
Costs associated with facility construction, productions, overhead, transportation to and from the facility, and state and local government incentives
Managing Quantitative Factors
Costs with facility construction, production, overhand, and transportation to and from facility. Government incentives. Location affect on sales volume and selling price.
Which of the following is not part of Dr. Eliyahu Goldratt's Theory of Constraints?
Create the system's constraints.
According to the Theory of Constraints 5-step thinking process, which of the following actions would be a waste of an organization's resources?
Having all workers in all departments produce as much as possible.
Which of the following is often a key aspect in capacity planning for services, unlike capacity planning for goods?
Inventory cannot be built ahead for most services.
Mass Customization
LOW-COST, HIGH-QUALITY, LARGE-VOLUME DELIVER OF INDIVIDUALLY CUSTOMIZED GOODS & SERVICES 1) RANGE/VARIETY 2) MOBILITY/RESPONSIVENESS - change quickly one product to another 3) UNIFORMITY - ability to attain similar performance across the entire range of outputs The ability of an organization to tailor its products or services to the customers' specifications with advances in technology. Products can be a high variety, yet low in costs. Combines the pursuit of economies of scale and scope, quality improvement, and flexibility.
Qualitative Factors for manufacturing locations
Labor climate Quality of life Proximity to customers and markets Proximity to suppliers and resources Proximity to competition
The first step in the theory of constraints (TOC) process is to ________ system constraints.
IDENTIFY
Which qualitative factors are considered when making manufacturing location decisions?
Labor climate, quality of life, proximity to customers and markets, proximity to suppliers and resources.
Quantitative factors for manufacturing locations
Labor costs Material costs Transportation Utilities, taxes, real estate costs, construction costs Government incentives
Which quantitative factors are considered when making manufacturing location decisions?
Labor costs, materials costs, transportation, utilities, taxes, real estate and construction costs and government incentives.
Which quantitative factors usually impact manufacturing and service operations equally as they make location decisions?
Labor costs, taxes, real estate costs, construction costs, and government incentives.
Product Layout
Layout that uses standardized processing operations to achieve smooth, rapid, high-volume flow
On an ongoing basis when production processes are stable, effective capacity will be _______ design capacity.
Less Than
Consider the Competition
Location also important for service operations.
Minimizing Emergency REsponse Times
Location of emergency units, such as fire and ambulance, is determined by minimizing response time, providing minimum coverage, and operating from a mobile location. Response is important when time is a critical factor. Objective is to maximum response time is minimized. Minimum coverage implies that ALL customers have a minimum level of coverage.
Leverage
Making a workforce more productive through the use of better tools.
Government Incentives
Many state and local governments may offer significant reduction in property taxes, offer low-interest loans, provide free training to workers, and subsidize wages for a period of time, help slice through red tape, buy parcels of land by using power of eminent domain -- aggressive efforts to attract new businesses
Utilities
May have both fixed and variable components. Some are variable - power to run a drill press - others not directly to product such as energy to heat building Fixed is in overhead, variable shown seperate
Capacity
Measure of an organization's ability to sustainably provide customers with the demanded services or goods in the amount requested and in timely manner, given current resources. Maximum sustainable rate of production.
Capacity Estimation
Necessary prerequisite to capacity planning. Knowledge of existing limits. Capacity function of management ingenuity, influenced by good planning, good operating procedures, effective maintenance programs, and other management decisions.
The Acme Manufacturing Company is operating at a maximum rate of production and meeting the demand of its customer base. Acme is
OPERATING AT CAPACITY
Projects Process
One-of-a-kind operations, batch size is one Ex large construction jobs, new computer software/hardware In a sense, entire cost is variable - fixed costs in the form of overhead spread over multiple projects Project-oriented operation is very flexible, allowing extensive customization of the finished product - common in service operations
Flexible Manufacturing System (FMS)
PROCESS OPTION -- LOW COST PRODUCTS Similar to Manufacturing cells; difference has more automation, robots and computer control - tends to operate without people capture new markets by accumulating production requirements from several low-volume products. Higher-volume operations- a set of machines in one layout to produce all the different products. The products, must be similar enough to have the same or a similar sequence of operations, and the machines must be flexible enough to handle the differences.
A -Select- layout is characterized by high consumer demand for similar goods that have few variations.
PRODCUT ORIENTED
Which of the following involves a firm having one manufacturing location to produce one product and shipping the product around the country or world?
PRODUCT FACILITY STRATEGY
In the shipping center example, the -Select- Department is the bottleneck.
Packaging
Capacity Utilization
Percentage measure of how well available capacity is being used. Actual Output / Design Capacity Ex: Car can go up to 120 MPH - design capacity Speed limit 70 - effective capacity Actual average spped - 50MPH due to fuel stops, breaks, meals, etc Utilization = 50/120 = 42%
______ involves determining the most appropriate method of completing a task based on technical issues and scale issues.
Process Selection
When describing the output of a service business such as a hairdresser, we are more likely to explain output using "number of customers served" because this type of service business uses a -Select-
Process layout
Manufacturing Cells and Flexible Manufacturing Systems
Process options to product low-cost products that meet varying customer requirements.
A Hint, displayed below-Select- means that one facility is responsible for producing and shipping throughout the world. means that one facility is responsible for producing one product, or product line, and shipping that product throughout the country and the world.
Product facility strategy
Transportation costs, government incentives, and local wage rates are -Select- factors that influence manufacturing location decisions.
QUANTITATIVE
Effective capacity is based upon what a manufacturer can produce in -Select-conditions.
REALISTIC
Low Product Variation/Continuous Flow
Referred to as line flow processes such as continuous flow. Does not ID w/ individual units - product flow is mixed and flows as continuous stream. Ex oil refining, processing checks Relatively high fixed costs and relatively low variable costs.
A -Select- is used when customer convenience and access are important, or when outbound transportation costs are very high.
Regional facility strategy.
Manufacturing Cells
Rely on group technology to build a family of parts w/ similar design and processing characteristics. Classify parts based on size, shape, use, type of material, and method of production. Reduce material-handling costs, increase machine utilization, and shorten production lead times. Since processing is similar, less time is required to change from one product within family to next.
IKEA Canton is thinking of adding another shift to the work day at the store. This would be an example of what type of constraint?
Resource
Review the Beck Manufacturing example. Assume that as part of Step 4, the decision was made to purchase another machine for Final Assembly. Final Assembly now has the capacity to produce 400 steering gears per hour. Step 5 of the TOC 5-step thinking process suggests which of the following actions?
Review the process, resource, and demand constraints and find the next bottleneck.
John realizes that IKEA's capacity planning deals with its status as a -Select-
Service
Jennifer wants to review the several locations for the new gas station logically. Jennifer should prepare a _____________ analysis.
Side-by-side cost
Continuous Flow and Assembly Line Similarities and Differences
Similarities* Dedicated facilities producing large volumes with little difference in products ** Product layout** equipment process should be around the product so material-handling and transport costs not excessive Differences* Continuous flow - often commodity - emphasis on measuring inputs & compare to outputs Assembly-line - allows some variations - options usually selected from list - minor adjusted needed to make variation can be done by worker; technology allows to be more flexible
System Capacity
The ability of an overall organization to produce a sufficient number of goods and services to meet the demands of customers, considering both its strongest and weakest production points
Effective Capacity
The capacity a firm can expect to achieve, given its product mix, equipment changeovers, and scheduled downtime of the production schedule. (Design capacity minus projected issues such as breakdowns/maintenance, etc)
If the furniture department has 60 customers visit each hour and the lighting department has 30 customers visit each hour, what is the problem facing IKEA?
The furniture department is more crowded and slows down movement throughout the store.
Design Capacity
The maximum output rate or service capacity an operation, process, or facility is designed for under ideal conditions for a short period of time. (no breakdowns, maintenance, material, or worker errors)
Capacity in the IKEA store could be measured by which of the following?
The number of orders placed in the appliance department.
Facility location
The placement of a facility with regards to a company's customers, suppliers, and other facilities with which the company interacts. Factors: costs to acquire land, building, as well as costs for labor, taxes, and utilities and operating costs. Convenience to customers - access to banking, education, and other activities.
Location Analysis
The process of evaluating whether a general location meets the requirements of being both possible and practical as defined on the basis of technical and functional components. * Coordinate plane
Step 3: Subordinate everything else to the above decision.
* Communicate decision to every dept in organization. Ensure workers and supervisors understand why. * All organization's decision must be aligned, or it will create dissatisfied workers, excess inventory and unhappy customers. * once system has achieved throughput on a stable basis, it is time to consider adding more capacity.
Step 4: Elevate the system's constraint.
* Determine how to increase bottleneck's capacity by adding another shift or outsourcing work. Or adding another machine or outsourcing work. Often requires financial analysis to determine which option will have best return on investment. *Ex adding half-shift of part-time workers to a department in evening will increase capastiy.
Step 2: Exploit the system's constraint.
* Ensure bottleneck dept is at 100% capacity utilization and efficiency. * Common ways of achieving high capacity utilization include training, equipment maintenance, and cross-training so that the bottleneck is never shut down for breaks. * Increase output by cross-training, implementing staggered lunch times, or increase work day to 9 hours.
Step 5: If a constraint has been broken, go back to Step 1. Do not allow inertia to cause a system's constraint.
* Once more capacity has been added, it is no longer the bottleneck. Are there any other constraints which may prevent this system from achieving throughput. Yes - next bottleneck would be Dept D which can only produce 68.5 units per day. Step 5 reminds us to keep seeking ways to improve our processes.
When Proximity Matters
* customers that use a service facility in person, being close to customers is very important Ex retail * transportation costs are important for warehousing and distribution, but response time - time elapsed between request and delivery may be more important.
Five-Step Thinking Process
1) ID system contraints. 2) Exploit the system's constraint. 3) Subordinate everything to the above decision. 4) Elevate the system's constraint. 5) If a constraint has been broken, go back to step 1. Don not allow inertia to cause a system's constraint.
Which type of operation would most likely benefit by using a product facility strategy?
A computer chip manufacturer
Assembly line operations are best used in certain production situations. Which of the following types of businesses is best suited to an assembly line operation?
A fast-food restaurant
Variable costs
Those that change and can be adjusted as business conditions change such as prevailing wage rates, material costs, utility rates, and transportation costs for incoming materials and outgoing finished products.
Including Qualitative factors
To integrate qualitative factors into the location decision, managers should * decide which factors are relevant. * weigh each of the factors; some may be more important than others. * evaluate each site so that rational comparisons can be made
According to the theory of Theory of Constraints, "throughput" describes the state where output is as close to the system capacity as possible.
True
Process Layout (Custom-Product Layout)
A way of organizing production activities such that equipment and people are grouped together according to their function.
For a firm that wants to develop a competitive advantage as a low-cost leader by producing large volumes of similar products, a(n) -Select process would be best.
ASSEMBLY LINE
Economies of scale
Ability to produce more goods at a lower cost by better utilizing the same fixed costs. Building sales and production volume is necessary to minimize the fixed costs.
Capacity utilization and efficiency have -Select- output in common.
Actual Output
Efficiency
Actual Output / Effective Capacity
Joseph needs to address the increase in sales volume by -Select-
Adding more check out lines for customers.
A delivery-only pizza parlor provides a combination of a good (the pizza) and a service (the delivery). Which aspect of capacity decisions are not a consideration for capacity planning for this business?
Adequate space for the customer in the service delivery system.
Flexibility to:
Adjust production volume to respond to changes in customer demand. Produce different products on the same equipment (product mix) to respond to changing customer needs. Alter product technology and process technology to maintain or improve an organization's competitive position.
The Role of Facility Location
Analyze quantitative (easily measured due to numerical value) and qualitative factors (subjective and not enumerated) that influence manufacturing location decisions. Designing production system: 1) Designing a product 2) Determining where and how the product will be created (location and process) 3) Setting the capacity of the organization
The goal of a firm is to make money, as Goldratt explained in his bestselling book, The Goal, or a Process of Ongoing Improvement.
Any capacity decision that does not lead to increased system throughput, increased revenue, and/or decreased costs is a waste of a firm's resources.
Capacity decisions require careful consideration of _________ .
an organization's long-term objectives and the market demand.
As Joseph begins to understand the nature of the buying decision process at IKEA he can -Select-
build capacity in necessary departments.
If a business has customers that use a service facility in person, being close to customers is a very important factor because .
customers often place a high value on their time, therefore, convenience is essential.
Process selection involves completing tasks efficiently. The decision regarding which type of support material to use in a building is a(n
engineering issue.
Process selection
is determining the most appropriate method of completing a task. Technical and engineering issues.
Job Shop Process
low volume, customization, flexibility to produce a large variety of products or services - higher unit cost Process layout! Use flexible equipment/general-purpose machines with skilled labor. Cost structure - low fixed costs, high unit-variable costs Ex Fancy restaurants, hospital ER rooms
Product facility strategy
one facility is responsible for producing one product or product line and shipping that product throughout the country and world. - complex production process, hard to control - or when does not want to duplicate expensive equipment, facilities, and highly trained personnel. - advantages to specialization and economies of scale, transportation costs aren't prohibitive EX Jet plane
Economies of scale and scope are dependent on sales volume. According to your module text, which of the following has a direct impact on a company's sales volume:
producing higher quality products via continuous flow as volume decline, batching is necessary and unit costs begin to increase mass customization and flexible manufacturing tech, products can be different, yet low in cost - this is economies of scope
Regional facility strategy
requires that each production facility has a defined marketing area and each facility produces a complete line of products for that area. Ex fast-food, hospitals, banks - many customer-oriented businesses
Strong relationship among process selection and three critical elements in business:
volume, cost and profit.
Assembly Line
Assembly of low-variety discrete products such as washing machine/fast-food pizza
What is the primary focus of the theory of constraints (TOC)?
BOTTLENECKS
Why might the location of competitors be an important factor in making a location decision for service operations?
Because having competitors in the immediate area might negatively impact sales.
HIstorically, different manufacturing systems have been employed to improve productivity. How can companies attain economies of scope?
By diversifying their product line using the same equipment.
________ is a measure used to determine how much capacity is actually used on an average basis.
CAPACITY UTILIZATION
Which term refers to the maximum rate of production?
Capacity
Process Section and Economies of Scale and Scope
Compare how economies of scale and scope influence process selection
True or false? Concord Enterprises has implemented a product facility strategy, which means that each of its manufacturing plants has a specified marketing area and manufactures a complete line of products for that area.
Correct. Concord has implemented a regional facility strategy not a product facility strategy. A regional facility strategy requires that each production facility has a defined marketing area and each facility produces a complete line of products for that area.
Managers role in capacity utilization
Determine appropriate measure and apply it by: 1) Determine the maximum rate per hour of the production equipment. 2) Determine the number of hours worked in a give time period. 3) Multiply those two numbers.
A system rarely achieves maximum output. A more likely estimate of system output is -Select-
Effective Capacity
Ratio of Fixed Costs to variable costs
Fixed costs/variable costs
Economies of Scale or Scope
Focus on volume of product demand. Can be influenced by increasing advertising, providing better service, and producing higher quality products.
What could be a possible solution to this bottleneck issue for IKEA?
Have the store stay open longer.
Volume or Scale Decision
Involves applying the appropriate mix of technology to leverage the organization's workforce.
Total Costs
fixed costs + variable costs
Productivity is dependent on the efficient use of resources. Leverage can best be described as
increasing the output from the employees.
Fixed costs
those costs that remain essentially at the same level, regardless of any changes in the volume of production
The following considerations are important when integrating qualitative factors to evaluate location alternatives.
Factoring relevance and weight with respect to each potential site
Capacity Planning Strategies
1) Lead Strategy adds capacity with the anticipation of an increase in demand. Aggressive, primarily is used in effort to obtain customers from competitors. 2) Lag strategy adds capacity only after an organization is running at full capacity or is beyond due to increase in demand. Conservative approach. 3) Match strategy - Moderate approach - adds capacity in small amounts. 4) Adjustment Strategy- As consumer demand or major changes to product or system architecture occurs, used to add or reduce capacity in small or large amounts.
Evaluating Locations
1) Managing the quantitative factors, including the impact of location on cost and the increasing importance of government incentives 2) Describing the qualitative factors and illustrating how these can be analyzed, as well as integrated with the quantitative factors 3) Discussing the effects of the location decision on other operating factors.
Packages at a shipping center go through 3 processes, or departments, before they are put on a truck for shipment. The packaging department can package 100 boxes per hour. The weighing department can weigh 150 packages per hour. The labeling department can label 200 packages per hour. What is the system's hourly throughput?
100 boxes per hour.
When an organization has a production bottleneck, efficiency should equal capacity utilization, and both should be at , in order to maximize revenue and minimize dissatisfied customers.
100%
An oil-change shop is open for business 8 hours a day. The shop has 4 service bays and enough employees to work all 4 service bays. It takes an average of 30 minutes to complete an oil change, including the time to set-up and transfer from one car to the next. The oil change shop has enough demand to meet its design capacity. Typically, the shop completes 52 oil changes per day. Capacity utilization for this shop is , rounded to the nearest whole percent. Correct. Design capacity is 64 oil changes per day, and actual output is 52 oil changes per day. 52/64 is 81% capacity utilization.
81%
Economies of Scope
Can be expressed as "economies of scale through product line diversification." Building volume to cover fixed costs by producing a variety of products on the same equipment. Flexibility needed.
True or false? Design capacity is the maximum achievable output of a system under ideal conditions for a short period of time.
DESIGN CAPACITY
As Joseph walks through the IKEA Canton store, he notices that some departments seem very crowded. Joseph notes this is a -Select- issue.
Design - heavily-trafficked departments should be larger.
The maximum output a system could achieve in ideal conditions is
Design Capacity
Which term is defined as the maximum achievable output of a process or system?
Design Capacity
Types of Capacity
Design Capacity Effective Capacity Actual Capacity
Joseph needs to be concerned with -Select--capacity.
Design capacity - optimal layout of process
Many factors should be considered when Jennifer summarizes her findings and recommends a location for a new Speedyway gas station. When Speedyway is deciding about important aspects of its new service station, which of the following factors will be the most important?
Ease of access
equires flexibility within the organization and suggests building volume to cover fixed costs by producing a variety of products on the same equipment.
Economies of scope
Joseph recognizes that store expansion is critical but the need to hire employees may become an issue in the future. Hiring new employees is a(n) ___________ issue.
Effective Capacity
The manufacturer plans to produce 400 doors per day. On average, it tends to actually produce 380 to 390 doors. In ideal conditions, the manufacturer can produce 500 doors per day. "400 doors per day" is the manufacturer's _______.
Effective Capacity
is defined as the maximum capacity given equipment changeovers and scheduled downtime of the production schedule.
Effective Capacity
Review the Beck Manufacturing example. Which of the following is an action which needs to be taken, in order to accomplish Step 3 of the TOC 5-step thinking process?
Ensure each department understands how much to produce to ensure Final Assembly stays busy all the time.
Foundations of Process Selection
Explain how the variety of products is related to the volume for process designs.
Capacity Planning for Organizations
Explain the role of capacity planning for both service and manufacturing organization.
Role of Capacity Planning
Explain the role of capacity planning for both service and manufacturing organizations. ** important due to significant capital is usually required to build facilities and purchase equipment. / Fixed assets ** require careful consideration of long-term objectives and market demand - consistent with current and anticipated demand
A factory which makes Nike sneakers is most likely to use a process layout.
FALSE - Would use Product layout.
Review the Beck Manufacturing example and your results from the last exercise to reconfirm Step 1 of the Theory of Constraints process. Remember the conditions: There are two possible processes in production. 50% of steering gears go through process A, and 50% of steering gears go through process B. Total customer demand is 200 steering gears per hour. Al is able to buy all the parts he needs for production. The factory operates 8 hours per day. He has found that Sub-Assembly Dept. A can produce 110 sub-assemblies per hour, Sub-Assembly Dept. B can produce 120 sub-assemblies per hour, Final Assembly Dept. can produce 200 products per hour, and Testing Dept. can test 210 steering gears per hour. For Step 2, Beck Manufacturing should ensure that Sub-Assembly departments A and B each produce 110 units per hour.
False Correct. Final Assembly is the bottleneck. It is unable to assembly 220 steering gears per hour. If the Sub-Assembly departments produce more than Final Assembly can process, it will simply lead to an ever-growing pile of work-in-process inventory.
True or False The evaluation of quantitative factors is always more important than of qualitative factors when making service location decisions.
False Correct! Even though qualitative factors do not usually have measurable, direct effects, they do need to be carefully considered and integrated with quantitative factors when making service location decisions.
True or False Qualitative factors, including potential costs and revenues, must be organized for each site in a way that allows them to be easily compared when making service location decisions.
False Correct! Potential costs and revenues are considered quantitative costs. Potential costs and revenues, however, must be organized for each site in a way that allows them to be easily compared when making service location decisions.
True or False Qualitative factors do not usually have measurable, direct effects, so they do not need to be compared when evaluating location alternatives.
False Correct! Qualitative factors do not usually have measurable direct effects, but they are important to integrate with quantitative factors when making location decisions.
True or false? A product-oriented layout is characterized by demand for a variety of products that have different production requirements.
False Correct. A process-oriented layout, rather than product-oriented, is characterized by the production of many different products with the same equipment and low volume of any individual product. Each product has different production requirements that place different demands on the equipment.
A large regional bank is considering two locations for its new call center. One, a mid-sized city, features inexpensive real estate and low taxes but rates low in national "quality of life" surveys. The other, a large metropolitan area, features a highly educated, sophisticated workforce and easy access to a large airport but its cost of living rates are in the top 5%, nationally. True or false? A responsible site selection process will focus on cost factors but may ignore less tangible issues like quality of life and access to transportation.
False Correct. Both quantitative (such as cost) and qualitative (such as access to transportation) factors should be analyzed because, when integrated, they can influence service location decisions.
True or false? Economy of scale requires flexibility within the organization and suggests building volume to cover fixed costs by producing a variety of products on the same equipment.
False Correct. Economy of scope requires flexibility within the organization to produce a variety of products.
Once effective capacity is determined, it does not change unless new capacity is added.
False Correct. In general, capacity is not fixed. Effective capacity is a realistic estimate of what a system could produce, given planned downtime, which is influenced by the number of employees on vacation, new hires who are learning their jobs, and machines undergoing annual and planned maintenance.
Jacqui Vozzotti is an up-and-coming fashion designer from Kenya. Her designs received rave reviews at fashion shows across Europe and Asia, and she and her work have been featured in many articles in the fashion press. Her management team advises her that the time is right to open an exclusive retail boutique to highlight her designs. But, her investor-partner balks when she insists on locating the facility on "Fashion Row" in Rome, a multi-square block area where premiere designers present their wares to well-heeled shoppers. He insists that rent is far too expensive, as much as 10 times as high as a suburban storefront. Jacqui stands firm, maintaining that, to be successful, she must be located alongside her competitors. True or false. Jacqui's partner is right. Competitors' locations should not be an important consideration when choosing a location.
False Correct. Much like auto dealers or fast food restaurants, fashion boutiques can expect the location of their competitors to influence their own service location decisions because they can have a positive or negative impact on sales.
Al Beck, president of Beck Manufacturing, has decided to implement the Theory of Constraints 5-step thinking process in his manufacturing facility, which produces steering gears for auto manufacturers. The operation produces large numbers of nearly identical products. The image above shows the manufacturing process for gears. As shown in the diagram, there are two possible processes in production. 50% of steering gears go through process A, and 50% of steering gears go through process B. Total customer demand is 200 steering gears per hour. Al is able to buy all the parts he needs for production. The factory operates 8 hours per day. He has found that Sub-Assembly Dept. A can produce 110 sub-assemblies per hour, Sub-Assembly Dept. B can produce 120 sub-assemblies per hour, Final Assembly Dept. can produce 200 products per hour, and Testing Dept. can test 210 steering gears per hour. Apply Step 1 of the TOC 5-step thinking process. In the current process, the bottleneck is Hint, displayed below-Select-. A For Beck Manufacturing, the effective capacity of the system is Hint, displayed below-Select-.
Final Assembly Dept / 200 steering gears per hour
Capacity Decisions for Service Operations.
General rule is that services are produced and consumed simultaneously which means they must: 1) build enough capacity to meet maximum demand 2) manage demand so that people will use the services at off-peak times 3) choose not to satisfy all the demands Costs of decision: 1) Too large of capacity means significant portion of capacity is used infrequently. 2) High degree of producer-consumer interaction - creates uncertainty of processing time 3) Many services are not transported to customer, so the customer must come to the service delivery system.
Applying TOC in Capacity Planning
Step 1: ID the Constraint
Which type of operation would most likely benefit by using a regional facility strategy?
Subway franchise
Theory of Constraints (TOC)
Systems management philosophy that states that every organization is hindered by constraints that come from its internal policies. Continuous process. Creating optimal throughput.
Total-Cost Equation
TC = (VC)X + FC TC = total cost VC = variable cost per unit X= number of units produced FC = fixed costs
Girardi's, a happy hour wine bar, has outgrown its current location in a busy pedestrian mall in a bustling Northeastern city. Girardi's has built its reputation around its large patio seating area, where young professionals who work in the hip startups that surround the location, often gather with friends to blow off steam after work. As it reviews options in anticipation of a move, it finds that locations in suburban malls are much less expensive per square foot than locations that match its current ambiance and accessibility to its clientele. True or false? In choosing its next location, Girardi's should consider the value its current customers place on its location and accessibility, versus the savings it would incur in a much less expensive location.
TRUE
True or false? Although qualitative factors lack measurable, direct effects, they can be included in service location decisions if managers focus on the most relevant factors and give each factor a weight.
TRUE
True or false? Both continuous flow and assembly line processes use dedicated facilities to produce large volumes of goods with few, if any, product differences.
TRUE
True or false? Capacity utilization is a metric that helps operations managers determine the average amount of capacity used.
TRUE
The units of output for a service business are likely to be expressed in output per unit time.
TRUE - often low volume and high variety, which is typically a process layout. Output is typically expressed in output per unit time.
True or false? For a firm that wants to develop a competitive advantage as a low-cost leader, flow-oriented processes are appropriate.
TRue
Batch Flow
Used to describe a production process that aggregates similar products together to generate sufficient volume for efficient use in a facility. Requires significant changeover time - when changeover time is most significant - manufacturers may produce a bath (ex one week work) of particular model before switch One or a few product flows dominate - ex appliance manufacturer may produce several models of refrigerators on same assembly line Disadvantages: changeover time is non-productive; extra inventory must be maintained to satisfy demand for the products are not being produced
Flexible Manufacturing System Characteristics
Volume - High Product variety - Moderate Variety Product flow - Dominant Facility layout - Product Fixed costs - High Variable costs - Low Equipment - Flexible
Manufacturing Cell Characteristics
Volume - High Product variety - Moderate Variety Product flow - Dominant Facility layout - Product Fixed costs - Moderate Variable costs - Low to Moderate Equipment - Flexible
Batch Characteristics
Volume - High Product variety - Some Variation Product flow - Dominant Facility layout - Product Fixed costs - High Variable costs - Low Equipment - Some Flexibility
Continuous Flow Characteristics
Volume - High Product variety - Standard Product flow - Dominant Facility layout - Product Fixed costs - High Variable costs - Low Equipment - Special Purpose
Assembly Line Characteristics
Volume - High Product variety - Standard w/ minor modifications Product flow - Dominant Facility layout - Product Fixed costs - High Variable costs - Low Equipment - Special Purpose
Job Shop Characteristics
Volume - Low Product variety - Major Differences Product flow - Random Facility layout - Process Fixed costs - Low Variable costs - High Equipment - Flexible
Project Characteristics
Volume - One Product variety - one-of-a-kind Product flow - Not Applicable Facility layout - Fixed position Fixed costs - Low to Moderate Variable costs - High Equipment - Flexible
When might a product facility strategy be appropriate for an organization?
When the production process is complex and hard to control or when a firm does not want to duplicate expensive equipment so they produce in one facility.