OPERATIONS MANAGEMENT

CHAPTER 2: PROCESSES AND TECHNOLOGY

By:
Dr. Pallawi Baldeo Sangode
CONTENT
■ Break-even analysis
■ Process re-engineering
■ Virtual factory
■ Technology decisions, Classification of process technologies - manual,
mechanized & automated
■ Non-manufacturing operations - distribution and transport, warehousing
BREAK EVEN
ANALYSIS
Why BEA?
Manufacturing
Process 1 A B C

Manufacturing
Process 2 E F C

Manufacturing
Process 3 A G H

BEA helps us to get the best combination of processes to get the desired product in
lowest possible price.
Fixed costs
Fixed costs are costs that do not change when the quantity of output changes. Unlike variable
costs, which change with the amount of output, fixed costs are not zero when production is
zero. 
Examples of fixed costs:
■ Plant, machinery
■ Utilities
■ Insurance
■ Rent
■ Depreciation
■ Research and development
■ Administration costs
 Variable costs
A variable cost is a company's cost that is associated with the amount of goods or
services it produces. A company's variable cost increases and decreases with its
production volume. When production volume goes up, the variable costs will
increase. On the other hand, if the volume goes down, so too will the variable costs.
■ Raw material cost
■ Cost of energy and fuel
■ Labour cost

■ Total Variable Cost = Total Quantity of Output x Variable Cost Per Unit of
Output
 Total cost
Total cost = total variable cost + Fixed cost

Total revenue
Total revenue is the total money received from the sale of any given quantity of output.
Total Revenue = Selling Price × Quantity Sold
ASSUMPTIONS of BEA

(i) The total costs may be classified into fixed and variable costs. It ignores semi-
variable cost.
(ii) The price of the product is assumed to be constant.
(iii) The volume of sales and volume of production are equal./ The cost and revenue
functions remain linear.
(v) The fixed costs remain constant over the volume under consideration.
(vi) It assumes constant rate of increase in variable cost.
(vii) It assumes constant technology and no improvement in labour efficiency.
Break Even Analysis

A breakeven analysis is used to determine how much sales volume your

business needs to start making profit.
It is a system of determination of that level of activity where total costs
equals to selling price.
It indicates at what level cost and revenue are in equilibrium.
The breakeven quantity is the volume at which total revenue equals total
cost.
 Sales in Rs.

100
Total Cost

Variable cost

20

Fixed Cost

Units produced
10
 Sales in Rs. Total Revenue

100
Total Cost

Variable cost

Fixed Cost

Units produced
 Example of BEA
Fixed cost amounts 400,000.
Each pen costs 12 to be sold
The company sells the product at the price of 20 each
Maximum production capacity is 100,000units/year

Pens Sold 20,000 50,000 80,000

Total Sales 400,000 1,000,000 1,600,000

Variable costs 240,000 600,000 960,000

Fixed Cost 400,000 400,000 400,000

Total cost 640,000 1,000,000 1,360,000

Profit/ Loss (240,000) 0 240,000

Calculation of Break Even Point

1. In terms of physical units.

Eg: 50000 units of a product.
2. In terms of sales revenue.
Eg: Rs 16000000
3. In terms of % of capacity utilization.
Eg: 50% of the installed capacity.
 1. IN TERMS OF PHYSICAL UNITS

BEP in units = Fixed cost

Selling cost per unit – Variable cost per unit
Example:
Fixed Cost=Rs 1,00,000
Variable cost = Rs 2 / unit
Selling price= Rs 4/ unit
Maximum production capacity – 1,00,000 units/ year
Solution: BEP= 1,00,000/(4-2)= 50,000 units.
( ie. 50% of the capacity)
2. IN TERMS OF SALES REVENUE
BEP in Values = Selling cost per unit * Fixed cost Variable cost per unit

= 4 * 100000
2
=2,00,000 Rs
Managerial applications of BEA

1. Starting a new business.

2. Creating a new product.
3. To determine Margin of safety
4. Volume needed to attain the targeted profit.
5. Calculation of profit for different sales volume.
6. Maintaining a desired level of profit.
7. Choosing the most profitable alternative
8. Deciding on change in capacity/ capacity expansion decisions
9. Make or buy decision
10. Drop and or add decision
11. Fixation of selling price.
Uses of Breakeven Analysis

 Helpful in deciding the minimum quantity of sales

 Helpful in examining effects upon organization's profitability.
 Helpful in deciding about the substitution of new plants.
 Used while setting up a new business.
 Used in early stage business to check the predictions.
 Helpful in sales price and quantity.
LIMITATIONS

 Breakeven analysis is only a supply side analysis.

 It assumes fixed cost constant.
 It assumes average variable costs are constant per unit of output, at least in the range of
likely quantities of sales.
 It assumes the quantity of goods produced is equal to the quantity of goods sold.
(Revenue = Production)
Process re-engineering

Dr. Pallawi Sangode

Agenda

1. Understanding the basic concept of Business Process

Reengineering
2. Understanding the need of reengineering. How is the
concept useful to the organizations.
3. The underlying objectives in BPR and the process
involved

Dr. Pallawi Sangode

 Google’s Hiring Process
■ Google’s hiring process --- utter garbage.
■ Interview scores and job performance- Zero
relationship
■ The obvious choice : Turn to data.
■ From random questioning and towards a structured,
process-driven approach involving behavioral
interviewing.
■ By reengineering the hiring process, Google has
become known as one of the most effective
companies in the world at judging the right people to
hire.

Dr. Pallawi Sangode

Taco Bell
■ Edge of bankruptcy
■ Not kept up with the growing demands of their customers.
■ Annual revenue had greatly decreased.
■ Dismantled their processes and remodel it to suit their business needs.
■ K-Minus Program
■ Moved kitchen location where they can mass produce.
■ Limited kitchen area from 70% to 30%.
■ Increased customer area from 30% to 70%.
■ MIS in all restaurants

Dr. Pallawi Sangode

WHAT IS BPR?
What is a process?

What is engineering?

Dr. Pallawi Sangode

A Definition of BPR
BPR is the

Fundamental rethinking and

Radical redesign of

Business Processes

to achieve Dramatic improvements in

critical measures of performance
.. such as Cost, Quality, Service and Speed.
Dr. Pallawi Sangode
 Reengineering is not …….
■ Automation of existing processes
■ Sophisticated computerization of obsolete
processes
■ Playing with organization structures
■ Downsizing – doing less with less

Dr. Pallawi Sangode

Before a company decides to adopt BPR for their
functional reshuffling, they usually answer the
following questions:

■ Who are our customers? What values are we offering them?

■ Are the current processes delivering expected values?
■ Do the processes need to be redefined or redesigned?
■ Are the processes in sync with our long-term mission and goals?
■ How would we handle the existing processes if we were a new company?

Dr. Pallawi Sangode

WHY BPR?

Dr. Pallawi Sangode

 Why BPR?
1. Increasing competition-Quality, Cost and promptness of delivery

2. Globalization

3. Technological innovations

4. Huge inventory, buffers and other assets

5. Too many Controls and Checks

6. Rework, Iteration & Duplication of work

Dr. Pallawi Sangode

PROCESS OF BPR

Dr. Pallawi Sangode

Dr. Pallawi Sangode
The process of BPR
Requirements of the re-engineering
process
■ Clean Slate approach
■ Critical processes
■ Cross functional teams
■ Strong leadership
■ Information technology

Dr. Pallawi Sangode

Challenges in a BPR Exercise
1. Identifying Customer Needs & Performance Problems in the current
Processes (BPR experts)
2. Reassessing the Strategic Goals of the Organization
3. Defining the opportunities for Re-engineering
4. Managing the BPR initiative
5. Controlling Risks
6. Maximizing the Benefits
7. Managing Organizational Changes
8. Implementing the re-engineered Processes

Dr. Pallawi Sangode

Dr. Pallawi Sangode
Before:

1. More than 500 accounts payable clerks matched purchase order, receiving

documents, and invoices and then issued payments.

2. It was slow and cumbersome

3. Mismatches were common

Dr. Pallawi Sangode
Ford’s Accounts payable
After:
■ Reengineered procurement instead of whole AP process
■ Cut headcount in AP by 75%
■ Invoices are eliminated
■ Matching is computerized
■ Accuracy is improved
Changes occasioned by BPR
1. Work Units change
■ from functional departments to process teams
2. Jobs change
■ from simple tasks to multi-dimensional work
3. People’s roles change
■ from controlled to empowered
4. Job preparation changes
■ from training to education
5. Measures of Performance & compensation change
■ from activity to results
6. Criteria for career advancement change
■ from performance to ability
7. Values change
■ from protective to productive
8. Organizational Structures change
■ from hierarchical to flat
9. Executives change
■ from scorekeepers to leaders
Dr. Pallawi Sangode
BPR at Walmart

Results of BPR:
• Merchandise always in stock
• Suppliers are responsible for the management of their
own displays
• Elimination of distribution intermediate
• Costs reduction
• Better customer service

Dr. Pallawi Sangode

Texas Instruments (France): Procurement Process

Dr. Pallawi Sangode

 Results of BPR effort
• Cost reduction 40 times
• Productivity more than 5
times
• Zero stock
• IT based distributed system
• External goal !

Dr. Pallawi Sangode

Virtual Factory
 Simulation
■ A simulation is an approximate imitation of the operation of a process or
system that represents its operation over time.
■ Manufacturing represents one of the most important applications of
simulation.
■ This technique represents a valuable tool used by engineers when
evaluating the effect of capital investment in equipment and physical
facilities like factory plants, warehouses, and distribution centers.
■ Simulation can be used to predict the performance of an existing or
planned system and to compare alternative solutions for a particular
design problem.
Driving simulator
3DiTeams learner is percussing the patient's chest in virtual field hospital
Simulation of airflow over an engine
 Why simulate manufacturing?
■ The need for efficiency in the manufacturing industry has never been greater,
with material, transportation and labor costs continuing to rise each year.
■ Successful companies need to ensure that the costs associated with time,
equipment and other investments are being considered and optimized.
■ Simulation: Inexpensive, risk-free way to test anything from simple revisions
to complete redesigns.
■ Simulation also provides a way to test and implement principles of Lean
manufacturing and Six Sigma.
 What is a virtual Factory?
■ A virtual factory is defined as an integrated simulation model of major
subsystems in a factory that considers the factory as a whole and provides an
advanced decision support capability.
■ It seeks to go beyond the typical modeling of one sub‐system at a time, such as
the manufacturing model, the process model and/or the communication
network model developed individually and in isolation.
■ It refers to an integrated model that includes variety of software in order to
solve any real time problem of manufacturing system.
■ In manufacturing, it creates a virtual simulation exercise that helps in
replicating the real life scenario and helps in designing and implementation.
■ Major companies (e.g. Siemens, SAP and Oracle) providing commercial
simulation software solutions for product, process and system design.
■ Software used in Virtual Factory
ORACLE
CAM (computer aided manufacturing)
CAPP (computer aided process planning)
Objectives of a virtual factory are to obtain the measures
of evaluating manufacturing:

■ Parts produced per unit time

■ Time spent in system by parts (Machine capacity)
■ Time spent by parts in queue (waiting time) (Holding costs)
■ Bottlenecks in manufacturing (Constraints)
■ Time spent during transportation from one place to another ( layout designing)
■ Safety stock identification (buffer)
■ Inventory in process (WIP)
■ Percent utilization of machines and workers (productivity)
3D Factory Design

[Link]
 Parallel concepts:
Virtual Reality and Augmented Reality

■ Virtual Reality (VR) is becoming commonplace due to its increasing popularity in the gaming industry.
■ The ability to virtually review designs even before the first physical prototype is created offers enormous advantages for
companies.
■ Augmented reality (AR) adds digital elements to a live view often by using the camera on a smartphone. Examples of augmented
reality experiences include Snapchat lenses and the game Pokemon Go. 
■ Virtual reality (VR) implies a complete immersion experience that shuts out the physical world. Using VR devices such as HTC
Vive, Oculus Rift or Google Cardboard, users can be transported into a number of real-world and imagined environments such as
 Advantages of Virtual Factory
■ Virtual Factory facilitates, expedites and cheapens the design of manufacturing.
■ It helps in creating capabilities to support the rapid development in manufacturing sector by
pooling the experts from IT industry.
■ It eliminates the need for pilot plants or production runs and replaces it with virtual
simulation on software.
■ The introduction of simulators in virtualized industrial environments will help optimize and
secure/ fix workspaces and production lines.
■ Quality Assurance: More comprehensive QA checks
■ Risk Management: preplanning of risks and issues
■ It will also improve the training of operators, as training can be carried out in virtual factories
that faithfully reproduce real conditions, with simulated failures and risky situations. This is
especially relevant when we consider prevention of occupational hazards.
■ Ultimately helping the managers in the decision making process.
MCQ 1

■ What will be the impact on B.E.P if variable costs are reduced?

a. Decrease
b. No change
c. Increase
d. None of the above
MCQ 2

■  What will be the impact on B.E.P if fixed cost is increased?

a. Decrease
b. No change
c. Increase
d. None of the above
MCQ 3

Which of the following is the best explanation of business process reengineering?

a. Redesigning the organizational structure of a business
b. Redesigning workflow
c. Redesigning products
d. Transformation of business processes for more effective achievement of business goals
MCQ 4

■ If you are researching processes for improvement, what stage of BPR are you
working on?
a. Identification
b. Analysis of current processes
c. Find or create ways to improve
d. Implementation
CLASSIFICATION
PROCESS
TECHNOLOGY
PROCESS TECHNOLOGY

• Process technology is the type of technology required for planning,

organising and controlling the production goods or services from raw
material.
• It is the machines, equipment and devices that create and deliver products
and services.
• Process technicians control, monitor and troubleshoot machines,
equipment and devices for processing material.
• It has very significant effect on quality, speed, flexibility and cost.
Classification of process technologies

■ Manual
■ Mechanized
■ Automated
Classification is based on historical progression of processes.
This classification is useful in comparing how each affects the competitive
priorities of cost, flexibility, quality, and the ability of the enterprise to
perform on time.
Manual System
• Manual means everything
is completed by hand.
Everything is powered by
hand.
• This, in turn makes
everything made totally
manually as being unique
• Labor cost is high
• Manual processes are
often slower and more
tailored to situation at
hand
 Mechanization
• Mechanized Production can best be
viewed as equipment being powered
by other energy sources such as wind,
water, electricity or engine.
• These perform work accurately and
repeatability.
• They assist man and do not replace
him.
• An example could be a driver in a car,
a factory worker who operates
equipment or a cash register at a
supermarket who scans items.
• These are man-machine interfaces
where the machine is incapable of
doing anything unless operated man.
Automation

• Automatic Production is where

the man-machine interface is
demolished to such an extent
that it appears to produce all by
itself.
• Enables precise operational
capabilities, reducing errors and
saving time
• Helps focus resources on high
value activity due to automation
of manual work
 Automation -advanced process technologies
1. Robotics
2. NC machines: Numerically controlled machines where machine tools are computer
controlled. (Drilling or embroidery machines)
3. FMS: Flexible manufacturing systems that combine NC machines in flexible systems of
production.
4. CAD / CAM: Computer aided design and manufacturing systems that combine product
design and manufacturing instructions.
5. CIM: Computer integrated manufacturing in which all aspects of manufacturing are
integrated through a design and manufacturing data base.
6. GT: Group technology that organizes planning and facilities for small-lot manufacturing
by grouping various parts and products with similar design and production process into
efficiency systems that can use NC machines, robots, or other advanced technologies.
7. [Link]
COMPUTER AIDED DESIGN
COMPUTER AIDED
MANUFACTURING

[Link]
ROBOTICS
[Link]
robots-are-replacing-workers-in-auto-plants-in-india/49991064
NON-MANUFACTURING OPERATIONS
Warehousing
Transportation
distribution
 WAREHOUSING

• Warehouse is a storage facility place where goods are stored on a

very large scale after it is manufactured or transferred from one
place to another.
• It provides time by connecting the gap between production of
goods and consumption of goods.
• Raw material and finished goods
• It is a systematic and orderly storage of goods for identifying and
making them available conveniently when needed.
Need and importance of Warehousing
■ Continuous supply of material
■ Price stabilization (raw material, finished goods)
■ Storage of surplus goods
■ Minimisation of risk ( Price fluctuations, shortage)
■ Get a central storage location
■ Improved order processing
■ Offers additional storage
■ Improved production quality
■ Improved purchasing decisions
■ Leverage seasonal growth
Warehousing activities
Types of warehouses

■ Private Warehouse
■ Public Warehouse (Govt owned)
■ Automated Warehouse
■ Distribution Center
■ Fulfillment Center
[Link]
TRANSPORTATION
 TRANSPORTATION
• Transportation refers to the movement of product from one location to
another as it makes its way from the beginning of supply chain to the
customer.
• Transportation is the most important activity in the economic system.
• Purpose: Product movement and in-transit product storage.
 Road transportation:

• Promising means for Agricultural and industrial produces

• Door-to-door service
• Flexible and reliable mode
• Reaching remote places
• speed
 Railway Transportation

• Bulk transportation
• Cost advantage
 Sea Transportation

• India has 55 shipping

companies exclusively in
coastal trade, 29 in overseas
trade.
• Ranks 6th in Asia and 15th in
world merchant shipping
trade
Container vessel
Dry bulk carrier

Tanker
Air transport

■ Less Hazardous
■ Costly
■ Used for highly perishable commodities
Inland water transportation: Any of the waters (as lakes,
canals, rivers, watercourses, inlets, and bays) within the territory
of a state as contrasted with the open seas 

Pipeline transportation: Pipeline transport sends goods

through a pipe, most commonly liquid and gases are sent

Ropeways:
Cause least damage to ecology
Inaccessible hilly areas can be reached with shorter distances
Other modes are uneconomical
Bulk material can be moved in shorter distances
Transportation networks
 Containerization
Containerization is the international shipping practice of storing a number of
pieces of freight within a large container and transporting them as a single unit.
This technique offers benefits to shippers, including less cargo handling, greater
cargo protection and reduced shipping costs.
Containers are transport devices for moving solid or liquid material.
Advantages of containerization include:
■ Less handling of cargo
■ More protection against pilferage
■ Less exposure to elements
■ Substantial reduction in logistical packaging costs
■ Lower shipping costs
Route Planning

■ Multiple sources and multiple destinations

■ Transportation costs high
■ Guiding principle of selecting Tx mode: least cost per unit weight/
volume of the product, type of product.
■ Reduction in Tx cost may reduce number of vehicles and improve
bottom lines
■ Transportation model: OPTIMIZATION
 DISTRIBUTION

• Refers to the process of overseeing the movement of goods

from supplier or manufacturer to point of sale.

• Also known as marketing channels.

• Connects the link between the producer and the consumer.

Distribution System of Pidilite
Thank You!