Operations managers consider several factors before choosing a production processing system for an organization. Some of these factors are
Figure: Flow Process (Material/Product Type) Chart for Manufacturing a Steel Collar
Variety and Volume
The type of process design that is appropriate for a production system depends greatly on the range of the product i.e. variety, and the volume of demand for each product model. Figure demonstrates the effect of batch size and the diversity of product designs on an organization's selection of product design.
In the figure, as we move from point P to point S, unit production cost and product flexibility decrease. Point P represents a case in which a variety of products is manufactured. In such a case, similar products are produced in small batches, with sometimes a batch containing just a single unit. Process-focused job shop production systems with very high flexibility are appropriate in such cases. As the product variety decreases and the batch size of products increases to a point Q, cellular manufacturing for the production of parts in a job shop system becomes more appropriate.
Figure: Influence of Product Diversity and Batch Size on Process Design Decisions
As the product varieties decrease further and the batch size of the product increases at point R, a product-focused batch system can be implemented. This system is relatively inflexible and necessitates special training for employees to shift their production activities between various products.
The other extreme, point S, represents a case where there is not much scope for product variety and the batch size is very large. At this point, a product-focused production system that is dedicated to the production of a non-differentiated product is appropriate. This production system helps managers reduce unit production costs to the lowest level. However, it is inflexible and impractical to alter the equipment to make it possible to produce other products.
Thus, the number of product models that is to be produced and the volume of demand that is expected for each product model have a significant effect on the manager's selection of process design.
Investment
In general, huge investments are required for setting up a product-focused production system that is dedicated to the production of a particular product. Such a system consists of inflexible equipment that is specialized to the product, and necessitates specific training of employees for producing the product.
The capital investment required also influences the decision-maker's choice of production system for the organization. Many organizations adjust their business strategies to meet their production targets by using the limited funds available.
Economic analysis
As described earlier, each type of process design requires a different amount of funds for its implementation, because fixed and variable costs tend to differ from one production system to another. The greater the investments in fixed assets, the greater are the fixed costs. Variable costs differ with the volume of products produced in each period, say one month. Figure 5.9 illustrates the different costs associated with different production volumes and types of process design for a hypothetical product.
Figure: Cost-Volume Relationship for Different Production Systems
As can be seen in Figure, the product-focused system is associated with high fixed costs. These costs (Rs. 20 crores) are related to the expensive machinery, automated controls and fixed-position material handling equipment. The variable costs associated with this system are relatively low as compared to the other types of process design. In the case of the process-focused job shop system, a comparatively lower initial investment in fixed assets is required, but there is a steep growth in variable costs when the production volume is increased. The fixed and variable costs of cellular manufacturing generally lie between these two process designs. If the availability of funds is not a major constraint, managers can select the process design on the basis of the targeted production volume of the product.
From Figure, it can be inferred that for the given product, a process-focused job shop design is preferable if the annual production volume is less than two lakhs of units. If the production volume ranges between two lakhs and three lakhs, a cellular manufacturing system is preferable. For higher volumes, a product-focused production system that is totally dedicated to the product is preferable.
Exhibit
Integrated Product Development
DaimlerChrysler integrated individual product development with production through its FastCar system.
FastCar Speeds Design Decisions
The process of converting a new or improved design into a new or improved product is a long drawn process. But the FastCar design initiative is making the process easier at DaimlerChrysler Corp. FastCar is an information infrastructure that integrates legacy system and web systems with all the functions that affect the product development process. FastCar links CAD geometry, simulation and analysis. It also incorporates other production and business systems such as finance, procurement, supplier systems, sales and marketing. It allows people who are connected with the product development process, from engineers to top management, to gather information regarding cost status, functional status, specifications, quality status, etc. throughout the design process. Through the FastCar system stakeholders can get information regarding the design process and also study the affect of the product development process on business and production activities. In the year 2001, the use of the FastCar network enabled DaimlerChrysler to reduce the time taken for design instructions to pass through to the product design team by 70 percent. DaimlerChrysler has decided to use FastCar in all future new-product development programs.
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