SCM 303 Chp 5 Lecture

7/29/2019 SCM 303 Chp 5 Lecture

1/13

2 The Eli Broad College of Business,

Michigan State University, 2012

Manufacturing and Service

Process Choices


2/13



High

Variety

Flexibility

Cost

Low

Cellular

Manufacturing

Mass

Customization

Project

Job Shop

Batch

Continuous

Process

Repetitive

Process

Low Volume High

Product-Process Matrix


3/13



Critical Elements of Process Choice

Equipment: Flexibility Staffing and training: Skill level of workers

Volume of output

Product design: Variety of products that can be

produced


4/13



Eng ineer to Order (ETO): unique, customizedproducts

Make to Order (MTO): similar design,customized during production

Assemble to Order (ATO): produced fromstandard components and modules

Make to Stock (MTS): goods made and held ininventory in advance of customer orders

Process Structure and Market Orientation


5/13



Manufacturing Process Characteristics

Product

Variety

Volume Equip.

Flex.

Skill level Market

orient.

Mfg. cost

Per unit

(Econ. ofScale)

JobShop

Batch

Repeti-

viveProcess

Cont.Flow


6/13



Contemporary Processes

Mass Customization

Maintain economies of scale from continuous orrepetitive processes

Increase variety for customers

Cellular Manufacturing

Maintain flexibility of job shop and batch

Increase efficiency


7/138 The Eli Broad College of Business,


Service Process Matrix

Service

Factory

Service

Shop

Mass

Service

Professional

Service

Low

High

Labor

Intensity

Customization/Customer InteractionLow High

Figure 5-3


8/139

The Eli Broad College of Business,Michigan State University, 2012

Service Processes

Think of an example of each:

Service Factory

Service Shop

Mass Service

Professional Service Think of the last service you purchased:

What category was it?

What changes can you suggest to move it to

another category?

What could be the advantages of the changes?


9/1310


Supply Chain Technologies

Decisions Support

Computing power and data management

Processing Material and data processing

Communications

Greater connectivity

Integrative

Combine all other capabilities


10/1311


Indifference Analysis: Example

A pizza company has variable costs (VC) of $3.00 perpizza, and fixed costs (FC) of $30,000 per year. Theaverage selling price is $8.00 per pizza. With a newprocess, fixed costs would increase to $42,000 per

year but variable costs decrease to $2.00 per pizza.

What should they do?


11/1312


In Supply Chain Management We Are Often

Concerned With Indifference Between Processes

Set the total cost equations for each process equal

to each other and solve for the unknown

Process A Process BFixed Cost + (Variable Cost)(Quantity) = Fixed Cost + (Variable Cost)(Quantity)

$30,000 + ($3.00)Q = $42,000 + ($2.00)Q($3.00)Q ($2.00)Q = $42,000 - $30,000

($1.00) Q = $12,000Q = 12,000 pizzas


12/1313


Hanks Hamburgers can prepare hamburger patties manually

for a fixed cost of zero and a variable cost of 5 cents ($0.05)per patty. Hanks could also lease a hamburger pressing

machine for a monthly lease cost of $400, This would reducethe variable cost to make each hamburger to 3 cents ($0.03)per patty. Hank expects to sell 15,000 hamburgers permonth. What should Hank do?

Set the two total cost equations equal to one another andsolve for volume.

Comparing Processes with Break even


13/1314


Hans Hamburgers Part two

Hanks forecast of 15,000 hamburgers per month was

wrong. Actual demand turned out to be 25,000hamburgers per month. If Hank chose the lowest costoption in the previous problem, how much extra cost isHank incurring because he did not forecast correctly?

Documents

SCM 303 Chp 5 Lecture