Goods versus Services

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 Discussion
 How different are there between goods and services?
Give example to make clear about your comparison.

1-2
Goods versus Services

Goods Services

Pure Goods Core Goods Core Services Pure Services

Food products Appliances Hotels Airlines University Medical
Chemicals Automobiles Internet service
Data storage systems Investment
Mining providers

Intangible
Tangible Interaction with customer required
Less interaction with customers Inherently heterogeneous
Often homogeneous Perishable/time dependent
Not perishable – can be inventoried Defined and evaluated as a package of
features

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 MANUFACTURING
PROCESSES

Chapter Seven
McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
 LO7–1: Understand what a manufacturing process
is.
 LO7–2: Explain how manufacturing processes are
organized.
 LO7–3: Analyze simple manufacturing processes.

7-2
Production Process Terms
 Lead time – the time needed to respond to a
customer order
 Customer order decoupling point – where
inventory is positioned to allow entities in the supply
chain to operate independently
 Lean manufacturing - to achieve high customer
service levels for a given inventory investment.

7-6
 Production Processes

 Production processes
are used to make any
manufactured item.
 Step 1 – Source the
parts needed
 Step 2 – Make the
product
 Step 3 – Deliver the
product

7-7
Types of Firms
Make-to-Stock

• Serve customers from finished goods inventory

Assemble-to-Order

• Combine a number of preassembled modules to meet a customer’s

specifications

Make-to-Order

• Make the customer’s product from raw materials, parts, and components

Engineer-to-Order

• Work with the customer to design and then make the product

7-9
Make-to-Stock
 Essential issue in satisfying customers is to balance the level
of inventory against the level of customer service.
 Easy with unlimited inventory, but inventory costs money
 Trade-off between the costs of inventory and level of customer
service must be made.
 Use lean manufacturing to achieve higher service levels for
a given inventory investment.

7-6
Assemble-to-Order
 A primary task is to define a customer’s order in terms of
alternative components because these are carried in
inventory.
 One capability required is a design that enables as much
flexibility as possible in combining components.
 There are significant advantages from moving the customer
order decoupling point from finished goods to components.

7-12
Make-to-Order/Engineer-to-Order
 Customer order decoupling point could be in either
raw materials at the manufacturing site or the
supplier inventory.
 Depending on how similar the products are, it might
not even be possible to preorder parts.

7-13
15
How Production Processes Are
Organized
 Project: the product remains in a fixed location
 Manufacturing equipment is moved to the product.
 Workcenter (job shop): similar equipment or functions are
grouped together
 Manufacturing cell: a dedicated area where products that
are similar in processing requirements are produced
 Assembly line: work processes are arranged according to
the progressive steps by which the product is made
 Continuous process: assembly line only the flow is
continuous such as with liquids

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How Production Processes Are
Organized
 Project: the product remains in a fixed location
 Manufacturing equipment is moved to the product.

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How Production Processes Are
Organized
 Workcenter (job shop): similar equipment or functions are
grouped together

7-18
Production System Design
Project Layout
• The product remains in a fixed location.
• A high degree of task ordering is common.
• A project layout may be developed by arranging materials
according to their assembly priority.

Workcenter
• Most common approach to developing this type of layout is to
arrange workcenters in a way that optimizes the movement of
material.
• Optimal placement often means placing workcenters with large
interdepartmental traffic adjacent to each other.
• Sometimes is referred to as a department and is focused on a
particular type of operation.

7-19
How Production Processes Are
Organized
 Manufacturing cell: a dedicated area where products that
are similar in processing requirements are produced

7-20
How Production Processes Are
Organized
 Assembly line: work processes are arranged according to
the progressive steps by which the product is made
 Continuous process: assembly line only the flow is
continuous such as with liquids

7-21
Production System Design

Manufacturing Cell

• Formed by allocating dissimilar machines to cells

that are designed to work on similar products
(shape, processing, etc.)

Assembly Line and Continuous

Layout
• Designed for the special purpose of building a
product by going through a series of progressive
steps
7-22
Product–Process Matrix: Framework Describing Layout
Strategies

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24
Break-Even Analysis
 Defined as standard approach to choosing among
alternative processes or equipment.
 Model seeks to determine the point in units produced where
a company will start making profit on the process.
 Model seeks to determine the point in units produced where
total revenue and total cost are equal.
Purchase cost of process or equipment
Breakeven Demand =
Price per unit - Cost per unit
or
Total fixed costs of process or equipment
=
Unit price to customer - Variable cost per unit

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Example 7.1: Break-Even Analysis

 Buy for $200

 Make on lathe for $75
 Make on machining center for $15
 Buy has no fixed costs
 Lathe has $80,000 fixed costs
 Machining center has $200,000 fixed costs

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Example 7.1: Total Cost for Each Option

 Purchase
Cost = $200 x Demand

 Produce Using Lathe

Cost = $80,000 + $75 x Demand

 Produce Using Machining Center

Cost = $200,000 + $15 x Demand

7-28
Example 7.1: Costs Shown Graphically

7-29
Example 7.1:Finding Points A and B
Point A
$80,000 + $75  Demand = $200,000 + $15  Demand
$80,000 + $60  Demand = $200,000
$60  Demand = $120,000
Demand = $120,000 = 2,000
$60

Point B
$200  Demand = $80,000 + $75  Demand
$125  Demand = $80,000
Demand = $80,000 = 640
$125 7-30
Practice 10
Assume a fixed cost of $900, a variable cost of $4.50, and a
selling price of $5.50.
a. What is the break-even point?
b. How many units must be sold to make a profit of
$500.00?
c. How many units must be sold to average $0.25 profit per
unit? $0.50 profit per unit? $1.50 profit per unit?

31
Manufacturing Process Flow Design
 Manufacturing process flow design – a method to
evaluate the specific processes that material follow
as they move through the plant
 Focus should be on the identification of activities
that can be minimized or eliminated
 Movement and storage
 The fewer the moves, delays, and storage, the better
the flow

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The Charts
 Assembly drawing (vẽ lắp ráp): an exploded view of the
product showing its component parts
 Assembly chart (sơ đồ lắp ráp): defines how parts go
together, their order of assembly, and overall flow pattern
 Operation and route sheet (bảng vận hành và lưu
chuyển): specifies operations and process routing
 Process flowchart (lưu đồ quy trình): denotes what
happens to the product as it progresses through the
production facility

7-33
Sample Assembly Drawing

7-34
Sample Assembly Chart

7-35
Sample Operation and Route Sheet

7-36
Sample Flowchart

7-37
Manufacturing process analysis
 A process usually consists of
 (1) a set of tasks

 (2) a flow of material and information that connects

the set of tasks

 (3) storage of material and information

=> adjusting the capacities and balance among

different parts of the process to maximize output or
minimize the costs with available resources.

38
VD 7.2: Phân tích qui trình SX

7-39
Example 7.2: Manufacturing Process
Analysis: Assembling
 15 workers, eight-hour shift
 Can assemble 150 components per hour
 Incentive pay of 30¢ per good part
 Can hire 15 more workers for second shift if
needed
 All but molding from outside vender

7-50
Example 7.2: Molding
 11 Machines
 One usually down
 One operator per machine

 25 parts per hour

 Paid 20¢ per part
 Overtime is 30¢ per part
 Employment is flexible
 Currently 6 employees
 4 more available

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Example 7.2: Remaining Costs
 Raw materials are 10¢ per part
 Electricity is 2¢ per part
 Purchased parts cost 30¢ per component

 Other weekly expenses

 Rent is $100
 Other employees receive $1,000

 Accounting depreciation is $50

7-52
Example 7.2: Questions to Answer
a. Determine the capacity of the process per week.
Are the capacities balanced?
b. If the molding process were to use 10 machines
instead of 6, what would be the capacity of the
entire process?
c. If the company went to a second shift, what would
be the new capacity?
d. Determine the cost per unit output when the
capacity is 6,000 per week or 10,000 per week.

7-53
Example 7.2: Capacity of Entire
Process
 Molding Capacity
6 machines x 25 parts per hour per machine x 8
hours per day x 5 days per week = 6,000

 Assembly Capacity
150 components per hour x 8 hours per day x 5
days per week = 6,000

 The capacities are balanced.

7-54
Example 7.2: Increasing Molding to 10
Machines
 Molding Capacity
10 x 25 x 8 x 5 = 10,000

 Assembly capacity has not changed from 6,000.

 The capacities are no longer balanced.

7-55
Example 7.2: Increasing Assembly
Capacity
 Molding Capacity
10 x 25 x 8 x 5 = 10,000

 Assembly Capacity
150 x 16 x 5 = 12,000

 New capacity is 10,000.

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Example 7.2: Cost for 6,000 Parts per
Week

7-57
Example 7.2: Cost for 10,000 Parts
per Week

7-58