2
LEARNING OUTCOMES
Chapter 5 L.O.2.11 Describe four process strategies.
L.O.2.12 Conduct Break-even point analysis & do
PROCESS SELECTION process selection/ make-buy decision
3 4
Objective: create a process
that can produce offerings
PROCESS STRATEGY that meet customer
An organization’s requirements within cost
approach to and other managerial FOUR PROCESS
transforming constraints.
resources into STRATEGIES
Long-term effect
goods and services.
Variety →Efficiency
→Flexibility of production
→Cost
→Quality
5 6
PROCESS OPTIONS PROCESS FOCUS
A production
facility organized
Classify by around processes
variety & to facilitate low
volume volume, high-
variety
production.
Source: Heizer, J., Render, B. & Munson, C. (2020). Operations
Management: Sustainability and Supply Chain management
(13th ed.). Pearson Education, Inc.
Intermittent process/
Job shops
Job shop (or process layout)
PRODUCT FOCUS
Assembly
A facility
4 6 7 9 organized around
products; a
product-oriented,
5 8 high-volume, low-
variety process.
2 10 12
1 3 11
Continuous process
A B C Raw materials
9 10
MASS CUSTOMIZATION
REPETITIVE PROCESS FOCUS
Rapid, low-cost
A product-
production that
oriented
caters to
production
constantly
process that uses
changing unique
modules.
customer desires.
Module = part/ Module – previously prepared (often) in a What & when the MC = high variety + low cost
component of a product product-
product-focused process customer want precisely
(Process focus) (Product focus)
previously prepared & economically
11 12
Sales
High Design
Logistics
collaboration
Supply
Mass Production
Customization
chain
TOOLS OF PROCESS
= Make-to-stock ≠ Build-to-order ANALYSIS
High volume Build-
Build- Challenges
to-
to-order (BTO) Imaginative Product Design
Agile Process Design (Postponement)
Tight control of inventory (NO
unpopular/obsolete components)
Tight schedule
Responsive SCM
13 14
selection of a particular Flowchart Process chart
process strategy requires
decisions about equipment
and technology Time-Function
Selection of Tools of process Mapping Value Stream
The choice of equipment (Process Mapping
equipment requires considering cost,
analysis Mapping)
cash flow, market stability,
quality, capacity, and Service
flexibility Blueprinting
15 16
Flowchart
Shows the Process chart
movement of people
or materials
Source: Heizer, J., Render, B. & Munson, C. (2020). Operations
Management: Sustainability and Supply Chain management
(13th ed.). Pearson Education, Inc.
17 18
Where value is added in the
entire production process,
including the supply chain
Extends from the customer
back to the suppliers
Time-
Time-function
Mapping
Value Stream
Shows flows and time Mapping
frame
Source: Heizer, J., Render, B. & Munson, C. (2020). Operations Instructor: Huynh Thi Phuong Lan Source: Heizer, J., Render, B. & Munson, C. (2020). Instructor: Huynh Thi Phuong Lan
Management: Sustainability and Supply Chain management Operations Management: Sustainability and Supply
(13th ed.). Pearson Education, Inc. Chain management (13th ed.). Pearson Education, Inc.
19 Focuses on the customer and provider
20
interaction
Defines three levels of interaction
Each level has different management issues
Source: Heizer, J., Render, B. & Munson, C. (2020).
Operations Management: Sustainability and Supply
Chain management (13th ed.). Pearson Education, Inc.
Identifies potential failure points
Service
Blueprinting
Source: Heizer, J., Render, B. & Munson, C. (2020). Instructor: Huynh Thi Phuong Lan
Operations Management: Sustainability and Supply
Chain management (13th ed.). Pearson Education, Inc.
21 22
BREAK-EVEN-POINT
ANALYSIS
Source: Heizer, J., Render, B. & Munson, C. (2020). Operations
Management: Sustainability and Supply Chain management
(13th ed.). Pearson Education, Inc.
23 24
BEPx = v = (Formula 1)
Costs and revenue are linear BREAK-EVEN-POINT ANLYSIS
functions
Where:
→Generally not the case in the
Break-even-point real world A means of finding cf: fixed cost
analysis the point, in units
We actually know these costs v: volume (i.e., number of
or in dollars, at
→Very difficult to verify which costs equal units produced and sold)
Assumptions Time value of money is often to revenues. cv: variable cost per unit
ignored
p: price per unit
BEP$ = *p (Formula 2)
Example 1 25 26
Cv
Cf Fixed costs = $10,000 Material = $.75/unit
Direct labor = $1.50/unit Selling price = $4.00 per unit
Cv p
F $10,000
BEPx = = = 5,714
P -V 4.00 – (1.50 + .75 )
F $10,000
BEP$ = =
1 – (V / P) 1 – (1.50 + .75 ) / ( 4.00 )
$10,000
= = $22,857.14
.4375
27 Example 2: Consider 3 systems 28
Initial
Identify min. volume/ price of Investment Variable cost
product produced & sold. a) VacuClean System $ 250,000 $ 1.50
Select the appropriate process/ b) Wash n Scrub Model III $ 400,000 $ 1.20
c) DynoClean $ 550,000 $ 0.95
equipment
Application of Make-or-buy decision Which system do you choose?
BEP analysis . x = 400,000 + 12
250,000 + 15 . x
a&b
∴ x = 500,000
. x = 550,000+ .95x
400,000 + 12
b&c
∴ x = 600,000
. x = 550,000+ .95x
250,000 + 15
a&c
∴ x = 545,454
29 Example 3 30
dollars
Initial
Investment Variable cost
a) In-house Production $ 300,000 $ 70
b) Outsourcing $0 $ 150
550,000 BEP = ?
400,000
250,000
0 units
31
Example 4 32
We have 5 machines as follows ($):
M1 M2 M3 M4 M5
Fixed cost ($) 1000 11000 7000 4000 2N00
cost
Variable cost 0.5 0.1 0.2 0.3 0.4
($)
1. When we should buy M1, M2, M3, M4, M5?
300×10 6 2. If you have to produce 100 000 units, which one you choose? And the
price you should set for each unit?
3. You are producing15000 units. You consider to buy a supporting tool with
$A to reduce the variable cost as of 10%. The maximal value of A should
Buy Make be?
0
BEP = 3,750 volume
Instruction: 33 34
Step 1: Arrange the alternatives according to the increase in the fixed costs
M1 – M5 – M4 – M3 – M2
Step 2: Find the break-even points between them
M1 – M5: 1000 + 0.5 x = 2000 + 0.4 x X1
1. Heizer, J., Render, B. & Munson, C.
M5 – M4: X2
M4 – M3: X3 (2020). Operations Management:
M3 – M2: X4 Sustainability and Supply Chain
Step 3: Make the decisions management (13th ed.). Pearson
X ≤ X1 choose M1 Education, Inc.
X1≤ X ≤ X2 choose M2
X2≤ X ≤ X3 choose M3
references 2. Roberta S. Russell, Bernard W.
X3≤ X ≤ X4 choose M4 Taylor III, (2017), Operations
X≥X4 choose M5 management – Creating Value
Along the Supply Chain, 7th
edition, Wiley.
2. Choose M2 100000*p ≥ 11000 + 0.1*100000 p?
3. 15 000 units Choose M5: 2000 + A + 90% x 0.4 x 15.000 ≤ 2000 + 0.4 x 15.000
A ≤ $ 600
35
