Operations Management

PRODUCTION &

OPERATIONS MANAGEMENT

PRODUCTION

• The Process by which raw materials & other inputs are converted into finished products.

• Production is the creation of goods and services.

• Production means application of processes to the raw material to add the use and economic values to arrive at desired product by the best method, with out sacrificing the desired quality.

Production & Manufacturing

Manufacturing refers to the process of producing only tangible goods.

Production includes the creation of both tangible goods & intangible services.

Angles of Manufacturing Function

1.Production as a System

2.Production as an Organizational Function

3.Decision Making in Production

Production as a System

a)Production System

b)Conversion Sub- System

c)Control Sub- System

Production System Concepts• Production System: A system which

converts a set of inputs into a set of desired outputs.

• Conversion Sub- System: A sub-system of the larger production system where, inputs are converted into outputs.

• Control Sub- System: A sub-system of the larger production system where, a portion of the output is monitored for feedback signals to provide corrective action.

Production System Model

INPUTS

ENVIRONMENT• Legal/Political• Social, Economic• Technological

MARKET• Competition• Product Information• Customer Desires

PRIMARY RESOURCES• Materials & Supplies• Personnel, Capital Assets,

Capital, Utilities

Physical(Manufacturing, Mining)Locational Services(Transportation)Exchange Services(Retailing / Wholesaling)Storage Services(Warehousing)Other Private Services(Insurance, Finance, Utilities, RE, Health, Business & Personal Services)Government Services

Conversion Sub- System OUTPUT

Control Sub- System

Feedback Information

Goods/ Services

Production as an Organizational Function

• Conversion Sub- System is the Core/ Heart of Production System.

• Every Organization irrespective of its purpose, has a production function where departments and personnel play a central role in achieving the objectives of the organization.

Decision Making in Production

General Categories Of Decision Making:-

1. Strategic Decisions : Relating to products, processes & manufacturing facilities.

2. Operating Decisions : Relating to planning production to meet demand.

3. Control Decisions: Relating to planning & controlling operations, these decisions concern the day-to-day activities of workers, quality of products & services, production & overhead costs & maintenance of machines.

Type of decisions

Area of Involvement

Nature of Activities

Strategic Decisions(Planning products, Processes, and Facilities)

1. Production Processes

2. Production Technology

3. Facility Layout

4. Allocating resources to strategic alternatives

5. Long range capacity planning & facility location

Developing long range production plans including process designSelecting & managing production technology

Planning the arrangement of facilitiesPlanning for the optimal distribution of scarce resources among product lines

Answering ‘how much’ & ‘where’ about long range production capacity

Type of decisions

Area of Involvement

Nature of Activities

Operating Decisions(Planning production to meet demand)

1. Production Planning Systems

2. Independent demand Inventory Systems

3. Resource requirements planning systems

4. Shop floor planning & control

5. Material Management

Aggregate planning & master production scheduling

Planning & controlling finished goods inventories

Planning materials & capacity requirements

Short range decisions about what to produce & when to produce at each work CentreManaging all facts of materials system

Type of decisions

Area of Involvement

Nature of Activities

Control Decisions(Planning & Controlling operations)

1. Productivity & Employees

2. Total Quality Control

3. Project planning & Control Techniques

4. Maintenance Management & Reliability

Planning for the effective & efficient use of HR in operations

Planning & controlling the quality of products & services

Planning & controlling projects

Planning for managing the machines & facilities of production

IMPORTANCE OF PRODUCTION FUNCTION

Production helps achieve Competitive Advantage

1. Shorter new product- lead time2. More Inventory turns3. Shorter Manufacturing Lead Time4. Higher Quality5. Greater Flexibility6. Better Customer Service7. Reduced Wastage

Production Management

Production Management refers to the application of management principles to the production factory.

It involves application of planning, organizing, directing, & controlling to the production process.

Production management is defined as

management function which plans,

organizes, coordinates, directs and

controls the material supply and

Processing activities of an enterprise,

so that specified products are

produced by specified methods to

meet an approved sales programme.

Application of Management to the field of Production

Result of 3 Developments:-

1. Development of Factory system of

Production

2. Development of large

corporation….hire people

3. Value=> Performance & Profit=>

Techniques

OPERATIONS MANAGEMENT

Productive systems are those that convert or transform resource inputs into useful goods & services as outputs. Such productive systems are generally referred to as Operations Systems. POM relates to the management of such systems.Operations Management is the conversion of inputs into outputs, using physical resources, so as to provide the desired utilities.

Difference Between Production Management & Operation Management

1. PM is more used for a system where tangible goods are produced, OM is more frequently used where various inputs are transformed into intangible services.

It Covers Service organizations such as Banks, Airlines, Utilities, Production Control Agencies, Super Bazars, Educational Institutions, Libraries, Consultancy firms & Police Depts.2. Evolution of the Subject. i.e. PM precedes OM in the historical growth of the subject.

Functional Areas in a Business Organization

FIRM

FINANCE

PERSONNEL

MARKETING

PRODUCTION

Marketing Function: Aims to promote its

products among customers

Finance Function: Controls all other

subsystems to utilize money more effectively.

Personnel Function: Plans and provides

manpower to all other subsystem.

Production Function: Step by Step conversion

of one form of materials into another.

Views of Operations Management

• Traditional view A system that is involved with the manufacture

and production of goods and services.• Modern View A system designed to deliver value.

Approaches to Operations Management

1. Transformation Approach

2. Value Driven Approach

Transformation Approach

• OM is the business function that manages that part of business that transforms RM into goods & services of higher value

Inputs Process Output

PerformanceMeasuremen

t

Inputs Transformation Output

Value Driven Approach-Core Process Model

Supporting Business Processes

Core

Processes

Determine Customer Needs

Monitor Competitive Environment

Market products and Provide after

sales services

Measure Customer

Satisfaction

Understand Customers,

Market Segments and Competitors

Develop Product Strategy

Evaluate Product Concept

Create new product design or

product improvements

Build and test prototypes

Develop new products

Secure Processes and Materials to satisfy Demand

Operations Planning and

Control Processes

Manage Product Transformation

Processes

Manage Business Logistics

Manage the Supply Chain

Process

Manage Strategic Planning Processes

Manage Human Resource

Manage Information

Systems

Manage Financial

Resources

Enterprise Management

& Business Support Activities

InputsMaterialCapital

Equipment

PeopleInformatio

n

Output

Goods (Tangible)Services(Intangibl

e)

FEEDBACK

Operations Managemen

t

Customers

Suppliers

PROCESS

Value Driven Concept of Operations Management

Porter’s Value Chain

Human Resource Development: Attract best talent and help the manufacturing function Enhance the capabilities of the people through training. Create coherence between the people’s attitudes and organization’s

objectives.

Marketing Provide relevant market feedback Marketing Strategy may lead to company’s technology strategy Manufacturing strategy should provide backup for the customer service

goals.

Research and Development R&D functions helps in bringing additional flexibility in the design of new

processes and in the design of new products in the existing operational facilities.

Finance and Accounting Raise appropriate finance through an aggressive finance strategy The accounting, budgeting and control system should be supportive to the

manufacturing strategy.

Interfaces between the production system other functional Areas

Excellent Marketing

Inter Linkages between the Functions

LowProduction

Unsatisfied Customer

Poor Sales

ExcellentMarketing

Full Capacity Production

Poor SupplyOf Working

Capital(Finance)

Unsatisfied Customer

Full Capacity Production

Availability of sufficient

Working Capital

Lack of Personnel

Unsatisfied Customer

Excellent Marketing

Scope of Production & Operations Management

• Selection of location, acquisition of land, constructing building, procuring & installing machinery, purchasing & storing RM and converting them into saleable products.

• Quality management, maintenance management, production planning & control, methods improvement and work simplifications.

Evolution of Production Function

1. The Industrial Revolution2. Scientific Management3. The Human Relations Movement4. Operations Research5. Computers & Advanced Production

Technology6. The Service Revolution

The Industrial Revolution

• Production System prior to 1700s are referred to as the Cottage System

• From 1770- early 1800- England• 2 Major Developments:a) Substitution of machine power for human

powerb) Establishment of the factory system• Advanced further with the development of the

Gasoline engine and Electricity in the 1800s• Cottage System of production had been

replaced by the Factory System• Missing…..? Management

Scientific Management

A Philosophy which was propounded by business leaders, consultants, Educators and researchers.Contributors:1. F.W. Taylor-time study, methods

analysis,standards,planning & control2. Frank B. Gilbreth-motion

study,methods,construction,contracting, consulting,

3. Lillan M. Gilbreth-fatigue studies,human factor in work,employee selection & training

4. Henry L. Gantt-incentive,humanistic approach,training

5. Carl G. Barth-math analysis,consulting to automobile ind

6. Harrington Emerson-principles of efficiency7. Morris L. Cooke-SM its application to education &

govt.

Essential Principles

1. Developing a science for each element of a person’s work which would replace the old Rule-of-Thumb method

2. Selecting workers scientifically & training and developing them

3. Cooperating with workers to ensure that the work is done according to the principles of science that have been developed

4. Dividing work & responsibility equally between management & workers

The Human Relations Movement

Refers to the ways in which managers interact with their employees.Better work done by the employees, organization has an effective human relationsWhen morale & efficiency deteriorates, human relations are said to be ineffective.Factory workers- uneducated, in disciplined, unskilledFactory managers developed rigid controls to force the workers to work hard-1800s-early 1990s

Operations Research

Characteristics1. Approaches problem solving & decision

making from the total systems perspective2. Draws on techniques from varied disciplines

& applies the appropriate technique from each field to the system being studied

3. Does not experiment with the system but constructs a model of the system

4. Primary focus is in decision making5. Computers are used extensively

Computers & Advanced Production Technology

In the beginning computers were used

for clerical duties- payroll, billing cost

reports, inventory transaction etc..

Today- used as Decision Support

System(DSS), Expert Systems and

artificial Intelligence

The Service Revolution

It is a challenge for manufacturing managers, that they should evolve strategies and actions to manage service areas for better productivity, quality and competitiveness….

Characteristics of Modern POM

1. Manufacturing as competitive

advantage

2. Services orientation

3. Disappearance of Smokestacks

4. Small has become beautiful

Duties & Responsibilities of Production Managers

1. Planning the geographical location of the factory

2. Purchasing production equipment

3. Layout of equipment within the factory

4. Capacity planning

5. Production Control

6. Inventory management

7. Supply chain management

8. Quality control

9. Designing production processes and equipment……

Emerging Role of P&O Manager1. Take part in the strategic decision

making of the company2. Take part in the implementation &

use of ERP in the company3. Automate processes as per the

requirements of the company4. Enhance R&D effort in developing

self-relevant new technologies5. Protect environment by

implementing environment & pollution norms

Recent Trends in POM

1. Global Market Place2. Production/ operations strategy3. Total Quality Management4. Flexibility5. Time Reduction6. Technology7. Worker Involvement8. Re- engineering9. Environmental Issues10.Corporate Downsizing(or Right Sizing)11.Supply chain Management12.Lean Production

Challenges in Operations Management

1. Using Operations to Compete2. Managing Processes3. Managing Supply Chainsa) Locationb) Inventory Managementc) Forecastingd) Operations Planning & Schedulinge) Resource Planning

Systematic Approach to Process Analysis

Identify the Opportunity

Define the Scope

Document the Process

Evaluate Performance

Redesign the Process

Implement the Changes

Operations Strategy

• Strategy is an organization’s action plan to achieve the mission. Each functional area has a strategy for achieving it’s mission & for helping the organization reach the overall mission.

• These strategies exploit opportunities & Strengths, neutralize threats and avoid weaknesses.

• It is concerned with setting broad policies & plans for using the resources of a firm to best support its long term competitive strategy.

• It involves a decisions that relate to the design of a process & the infrastructure needed to support the process.

• Operational strategies can be viewed as a part of a planning process that coordinates operational goals with those of the larger organization. Since the goals of the larger organization change over time, the operations strategy must be designed to anticipate future needs.

• Firms achieve missions in 3 conceptual ways:1. Differentiation2. Cost Leadership3. Responsei.e., operations managers have to deliver goods & services that are a)Better or at least different, b) cheaper, c) more responsive

Ten Strategic OM Decisions

•Differentiation•Low Cost•Response

Can be achieved when managers make effective decisions in 10 areas of OM

These are collectively called

as Operations Decisions

1. Goods & service design: Transformation ProcessDetermines Cost, Quality & Human

Resource Decisions Designs determine the lower limits of cost

& the upper limits of quality

2. Quality:The customer’s quality expectations must

be determined & policies & procedures established to identify & achieve that quality

3. Process& Capacity Design:Process options are available for products & services. Process decisions commit management to specific tech, quality, HR use & maintenance. These expenses & capital commitments determine much of the firm’s basic cost structure.4. Location Selection:Facility location decision for both manufacturing & service organizations may determine the firm’s ultimate success. Errors made at this juncture may overcome other efficiencies.

5. Layout Design:Material flows, capacity needs, personnel levels, technology decisions & inventory requirements influence layout.

6. Human Resources & Job Design:People are an integral & expensive part of the total system design. Therefore, the quality of work life provided, the talent & skills required & their costs must be determined.

7. Supply Chain Management:Determine what is to be made & what is to be purchased. Consideration is given to quality, delivery & innovation at a satisfactory price. Mutual trust between buyer & supplier is necessary for effective purchasing.

8. Inventory:These decisions can be optimized only when customer satisfaction, suppliers, production schedules & HR planning are considered.

9. Scheduling: Feasible & efficient schedules of production must be developed; the demands on human resources & facilities must be determined & controlled.

10. Maintenance:Decisions must be made regarding desired levels of reliability& stability, & systems must be established to maintain that reliability & stability.

Ex: “To provide outstanding French fine dining for the people of Chicago

Process focusedJOB SHOPS(Print Shops,

emergency rooms, machine shop, fine dining restaurant)

Mass Customization

Customization at High Volume

(Dell Computer’s PC, Cafeteria)Repetitive Focus

ASSEMBLY LINE(Cars, appliances, TVs, Fast food Restaurants) Product Focused

CONTINUOUS(Steel, paper,

bread, Institutional

Kitchen)

HIGH

LOW

MODERATE HIGH

MODERATE

LOW

VOLUME

V

AR

IETY

OF

PR

OD

UC

TS

Global Operations Strategy Options

1. International Strategy2. Multi domestic Strategy3. Global Strategy4. Transnational Strategy

International Strategy

A strategy in which global markets are penetrated using exports and licenses.• Least advantageous with little local

responsiveness & little cost advantage• Little local responsiveness because of exporting

& licensing a good from the home country• Cost advantage may be few because of the

usage of the existing production process at some distance from the new market

• Easiest- as exports can require little change in existing operations, & licensing agreements often leave much of the risk to the licensee

Example: U.S. Steel, Harley- Davidson

Multi domestic Strategy

A strategy in which operating decisions are decentralized to each country to enhance local responsivenessTypically subsidiaries, JV, franchises with substantial independenceAdvantage- maximizing a competitive response for the local marketNo/little cost advantage Many food producers use this strategy to accommodate local taste because global integration of the production process is not criticalConcept- “we are successful in the home market, let’s export the mgt talent & processes, not necessarily the product, to accommodate another market”.Example: Heinz, McDonald's, The Body Shop

Global Strategy

A strategy in which operating decisions are centralized & head quarters coordinates the standardization & learning between facilities, thus generating economies of scaleAppropriate when the strategic focus is cost reduction but has little recommend it when the demand for local responsiveness is highEnd products are similar throughout the worldExample: Texas Instruments, Caterpillar

Transnational Strategy

A strategy that combines the benefits of global scale efficiencies with the benefits of local responsiveness, by recognizing that core competence does not reside in just the “Home” country but can exist anywhere in the organizationDescribes a condition in which material, people & ideas cross /transgress national boundariesThese firms have potential to pursue all 3 operational strategies- Differentiation, low cost, responseKey activities are neither centralized nor decentralized- each subsidiary can carry out its own tasks on a local basisExample: Nestle, Coca - Cola

Global Strategy• Standardized

Product• Economies of

Scale• Cross –cultural

learning

International Strategy

Import/ Export or license existing

product• Ex: U.S. Steel• Harley- Davidson

Multi domestic Strategy

• Use existing domestic model globally

• Franchise, Joint Ventures, Subsidiaries

LOWLOW

HIGH

HIGH

Transnational Strategy

• Move material,people, ideas across national boundaries

• Economies of Scale

• Cross –cultural learning

Ex: Coca Cola

Local Responsiveness Considerations

Cost

Red

ucti

on

C

on

sid

era

tion

s

Process Strategy

It is an organization’s approach to transforming resources into goods & services.The objective of a process strategy is to build a production process that meets customer requirements & product specifications within cost and other managerial constraints.Every good/service is made by using some variation of one of four process strategies:1. Process Focus2. Repetitive Focus3. Product Focus4. Mass Customization

PROCESS FOCUS

• A production facility organized around processes to facilitate low- volume, high variety production.

• The majority of global production is devoted to making low volume , high variety products in places called “job shops”. Such facilities are organized around specific activities / processes.

• Factory, Office, Bakery• Such facilities are process focused in terms of

equipment, layout & supervision• Provide high degree of product flexibility as products

move intermittently b/w processes. Each process is designed to perform a wide variety of activities & handle frequent changes- Intermittent Process

REPETITIVE FOCUS

• Falls b/w the product & the process focus

• Use modules- are parts/ components of a product previously prepared , often in a continuous process

• Repetitive process line is the classic assembly line. Widely used in automobiles & household appliances

Ex: fast food firms

PRODUCT FOCUS

• High volume, low variety processes are product focused. The facilities are organized around products. They are also called continuous processes b’coz they have very long, continuous production runs.

Ex: glass, paper, tin sheets, light bulbs, bolts are made via continuous processSpecialized nature of the facility requires a high fixed cost but low variable costs reward high facility utilization.

MASS CUSTOMIZATION

Rapid, low cost production that caters to constantly changing unique customer desires.It is not just about variety, it is about making precisely what the customer wants when the customer wants it economically.Mass customization brings us the variety of products traditionally provided by low- volume manufacture(process focus) at the cost of standardized high volume(product- focused) production.

PROCESS DESIGN

The transformation process is used to convert inputs into

desired outputs

Types of Process Design

Types of Processes

Continuous Process

Project

Batch Process

Intermittent Process

Job Shop

Semi- Continuous

Process(Repetitive/ Assembly

Continuous Process • Continuous in nature• The set- up time for starting such

processes is usually very long• Once started, they continue for a long

duration• Products produced by such a process are

highly standardized with almost no variety & are measured on a continuous basis rather than in terms of discreet units.

• Ex: Steel, Plastic, Sugar, Textiles, Detergents…

Semi- Continuous Process(Repetitive/ Assembly

• Repetitive in Nature• They produce high volume of output• Products produced have little variety• These processes require highly

specialized machines, semi- skilled workers

• Low cost per unit• Ex: Automobiles, electronic items,

Intermittent Process

• This process is very suitable for a large variety of output, each output taking a different route and hence operations, with different time requirements and sequence.

• Stops at regular interval of time because the product requires processing on a variety of machines.

• The products produced are of different varieties, thus makes the production process slow in comparison to the other processes

The characteristics of intermittent process

1. It is suitable when the output variety is large and the volumes are low.

2. It is flexible in approach since it uses general purpose machines for a variety of outputs.

3. The transformation process is organized around standard operations in the intermittent form ( e.g. in a bank we have saving accounts counter, current account counter, cash counter, advances and time deposits departments etc). Here each functional group is a specialist group.

4. Material handling here depends upon standard operations, and there is a work in process (WIP) inventory.

Types of Intermittent Process

1. Batch Process: adapted when batches or lots of items are to be produced using the same set of machines in the same sequence.Ex: Biscuits to be made in oven…( Salted, Chocolate, batch of bread…)

2. Under the intermittent manufacturing system, the production is done for stock or according to a customer’s order. When the manufacturing is carried on according to the specifications of the customer’s order, it is popularly known as “job lot manufacturing”.

Job Shop handles a larger variety of products than

the batch. The products may be different from

each other that their processing requirements

may be varied processes, on different machines,

different sequences, different processing times.

The items produced may vary in size

Ex: In a restaurant orders given by the

customers……

Job shop results in low volume of output at a given

time & thus costlier.

Project

• Projects are processes that handle very

complex and unique sets of activities which

have to be completed in a limited span of

time.

• Example: R&D projects, Construction of

plants, Building Complexes, implementation

of specialized software in an organization.

Trends in Operations Management

1. Productivity Improvement

2. Global Competition

3. Ethical Workforce Diversity and

Environmental Issues

Theory of Constraints

A Constraint is any factor that limits the

performance of a system and restricts its output.

When constraint exist at any step, capacity can

become imbalanced- too high in some

departments- too low in others.

As a result, the overall performance of the

system suffers.

• The theory was developed 3 decades ago by Eli

Goldratt, a business system analyst.

• The TOC is a systematic management approach

that focuses on actively managing those constraints

that impede a firm’s progress toward its goals of

maximizing profits & effectively using its resources.

• It outlines a deliberate process for identifying &

overcoming constraints.

Toc methods increase the firms’ profits more effectively

by making materials flow rapidly through the entire

system. They help firms to know how process can be

improved to increase overall workflow & how inventory

& work force levels can be reduced while still effectively

utilizing critical resources.

It is important to understand the relevant performance &

capacity measures at the operational level & their

relationship with the financial measures at the firm level.

Capacity Related Terminology

• What is a Constraint?– Any factor that limits system performance

and restricts its output.

• Capacity is the available time for production

• Bottleneck is what happens if capacity is less than demand placed on resource

• Non bottleneck is what happens when capacity is greater than demand placed on resource

• Capacity-constrained resource (CCR) is a resource where the capacity is close to demand placed on the resource

Operational Measures

TOC view Relationship to financial measures

Inventory(I) All the money invested in the system in purchasing things that it intends to sell

A decrease in I leads to an increase in net profit, ROI & cash flow

Throughput(T) Rate at which a system generates money through sales

An increase in T leads to an increase in net profit, ROI & cash flow

Operating Expenses(OE) All the money a system spends to turn inventory into throughput

A decrease in OE leads to an increase in net profit, ROI & cash flow

Utilization(U) The degree to which equipment, space, or workforce is currently being used & is measured as the ratio of average output rate to maximum capacity expressed as a percentage

An increase in U at the bottleneck leads to an increase in net profit, ROI and cash flows

According to the TOC view, every capital

investment in the system, including

machines & WIP materials, represents

inventory because they could all potentially

be sold to make money. Producing a product/

service that does not lead to a sale will not

increase a firm’s throughput, but will

increase its inventory & operating expenses

Kinds of Constraints

• Constraints can occur up or down the supply

chain, with either the firm’s suppliers or customers

or within one of the firm’s processes like

service/product development or order fulfillment.

• Physical –machine, labor, work station capacity,

material shortage, space, quality

• Market- demand is less than capacity

• Managerial- policy metrics, mind set that creates

constraints that impede work flow.

Seven Key Principles of TOC

1. The focus should be on balancing flow, not on balancing capacity

2. Maximizing the output & efficiency of every resource may not maximize the throughput of the entire system

3. An hour lost at a bottleneck or a constrained resource is an hour lost for the whole system. In contrast an hour saved at a non bottleneck resource is a mirage because it does not make the whole system more productive.

4. Inventory is needed only in front of the bottlenecks in order to prevent them from sitting idle, and in front of assembly & shipping points in order to protect customer schedules. Building inventory else where should be avoided.5.Work should be released into the system only as frequently as the bottlenecks need it. Bottleneck flows should be equal to the market demand. Pacing everything to the slowest resource minimizes inventory and operating expenses.

6. Activation of non-bottleneck resources cannot increase throughput, nor promote better performance on financial measures.

7. Every capital investment must be viewed from the perspective of its global impact on overall throughput (T), inventory (I), and operating expense (OE).

Practical application of TOC involves the implementation of following steps:

1. Identify the system bottlenecks

2. Exploit the bottlenecks

3. Subordinate all other decisions to

step2

4. Elevate the bottlenecks

5. Do not let the inertia set in

Bottleneck

• Special type of a constraint that relates to the capacity shortage of a process.

• Defined as any resource whose available capacity limits the organization’s ability to meet the service or product volume, product mix or fluctuating requirements demanded by the market place.

Identification & Management of Bottlenecks

Bottlenecks can be both internal or External to the firm. They Represent a process, a step or a work station with the lowest capacity.Throughput time is the total elapsed time from the start to the finish of a job or a customer being processed at one or more work centers.A workstation in a process is a bottleneck if-a) It has the highest total time/unit processedb) It has the highest average utilization &

workloadc) A reduction of even a single minute in its

processing time would reduce the average throughput time for the entire process.

Managing Bottlenecks in Service Process

Check loan documents & put them in order(15

min)

Categorize loans(20min)

Complete paper work for

new loan(10 min)

Check for credit rating

(15 min)

Enter loan application into

the system(12 min)

Identifying the BottleneckProduct A

$5Raw materials

Purchased parts

Product: APrice: $75/unitDemand: 60 units/wk

Step 1 at workstation V

(30 min)

Finish with step 3

at workstation X

(10 min)

Step 2 atworkstation Y

(10 min)

$5

Product C

Raw materialsPurchased parts

Product: CPrice: $45/unitDemand: 80 units/wk

Finish with step 4

at workstation Y

(5 min)

Step 2 atworkstation Z

(5 min)

Step 3 at workstation X

(5 min)

Step 1 atworkstation W

(5 min)

$2

$3

Product B

Raw materialsPurchased parts

Product: BPrice: $72/unitDemand: 80 units/wk

Finish with step 2

at workstation X

(20 min)

Step 1 atworkstation Y

(10 min)

$3

$2

Product D

Raw materialsPurchased parts

Product: DPrice: $38/unitDemand: 100 units/wk

$4 Step 2 atworkstation Z

(10 min)

Finish with step 3

at workstation Y

(5 min)

Step 1 atworkstation W

(15 min)

$6

Flowchart for Products A, B, C, and DOverhead Costs: $8,500; Labor Costs: $18/hr (8hrs/day; 40 hrs/week)