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chapter_8a_processes - CHAPTER 8 Process Selection Volume...

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1 CHAPTER 8 Process Selection: Volume Drives Costs and Profits Process Selection affects the outcome – in production or sports:
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2 What is Process Selection? Series of decisions that includes technical/engineering issues and volume/scale issues Technical/engineering: basic methods that produce a good or service Scale: how many or how much to produce; how many to serve at a time Trade off analysis between capacity and costs
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3 Why process selection is critical Dell – from make/assemble to order in Texas to make/assemble to stock off shore Does this work? Break even analysis may depend on process costs Which process gives the lowest costs – assumption?
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Break Even Analysis Total Costs = Total Revenues (Volume x Price) = (Fixed Costs + Variable Costs) Profit = (Total Revenue – Total Costs) B/E PT = Fixed Costs/Sales-Variable Costs
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Example Fixed Costs = $25000 Variable Costs = $8/item Sales Price = $15/item Fixed Costs Sales Price – Variable Costs B/E PT = B/E point = 3571.43 items Round up to 3572 items
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The Point of Indifference Comparing Two Processes What is it? Who cares? How do you calculate it? 6
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Comparing Two Processes Process A Fixed = $2000 Variable = $5/item Process B Fixed = $11000 Variable = $2/item
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Fixed A + (Var A )x = Fixed B + (Var B )x 2000 + 5x = 11,000 + 2x 3x = 9000 X = 3000 So what? Comparing the Processes
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9 Trade off analysis Customer demanded quantity drives the trade off analysis and decision process Example: → retail stocks at Christmas 2008 and 2009 season - goal save money by stocking less → At what point do you lose sales due to lower stockage levels?
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10 Process Design/Selection/Capacity Have to be simultaneous operations – some texts suggest sequential steps Decision process has to be customer based → what should it be? → how many should be produced/how many are we capable of producing? → how should it be produced?
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11 Product Design, Process Selection, and Capacity Decisions
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12 Process Strategy - Defines Capital intensity Process flexibility Vertical integration Customer involvement
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13 Goal of Process Design Reduce lead time for product to the customer Is it best to be the first to market and establish the market?
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