Page 82 - DMGT501_OPERATIONS_MANAGEMENT

Operations Management

Notes Table 3.5: Calculating Processing Requirements for a Firm

Product Annual Demand Standard processing time Required processing
(units) per unit ( hrs) time (hrs)
A 600 8 4800
B 800 6 4800
C 900 5 4500

In the example given above, we can see that Product A requires 4800 hrs, B requires 4800 hrs and
C requires 4500 hrs of processing time in order to meet annual demand. Thus the total processing
requirement of the firm is:
4800 + 4800 + 4500 = 14100 hrs

3.6 Make or Buy Decisions

Processes underlie all activities and hence are found in all organizations and functions. In
addition, processes create an inter-connected set of linkages, which connect the external and
internal linkages. These linkages are critical because it is not possible for an organization to
manufacture or process all its requirements internally.

Example: An automobile manufacturer would seldom consider manufacturing steel
although it forms the largest single item used in his product. Nor would an automobile
manufacturer manufacture headlights or dashboard instruments.
There are different categories of components, sub-assemblies and other inputs that go into an
organization's products. These categorizes are as follows:

1. Proprietary items: Proprietary items are based on the design of the supplier and used in
the end product without change in its basic form or characteristics, for example, headlights,
and dashboard instruments.
2. Standard components: These components are universally designed for general use. For
example, standard or customized fasteners are used in most manufactured products.
3. Specialty components: These components are specialized in nature like the tyres which
though used in all vehicles are a speciality product supplied by manufacturers of rubber
products.
4. Commodity type items: These items are supplied either to standard specifications, or
customized to the requirements of the user by the supplier. In the case of an automobile
manufacturer, steel would constitute such an item. In the case of a steel manufacturer,
coking coal, iron ore, limestone, dolomite, etc., would fall in this category.
These items involve large investments and are generally classified as different industries. An
investment in such bulk commodities or products, as a vertical integration strategy, is not very
common.

The remaining components, sub-assemblies, etc., are those designed for the product. These can
be related to what the management considers as:
1. Core, and

2. Non-core activities.

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