OPERATIONS MANAGEMENTOPERATIONS MANAGEMENTLecture # 6:Lecture # 6:

PROCESS & CAPACITY DESIGNPROCESS & CAPACITY DESIGN

Humayun AkhtarHumayun Akhtar

INTRODUCTIONINTRODUCTION

We have studied selection, definition We have studied selection, definition and design of goods and servicesand design of goods and services

Now we will look at their productionNow we will look at their production It is important to find the best way to It is important to find the best way to

produceproduce

PROCESS STRATEGYPROCESS STRATEGY It is an organization’s approach to transform It is an organization’s approach to transform

resources into goods and services.resources into goods and services. The main objective is to find a way to The main objective is to find a way to

produce products and services that meet produce products and services that meet customer’s requirements / and product customer’s requirements / and product specifications within cost and other specifications within cost and other managerial constraints.managerial constraints.

The process thus selected will have a long The process thus selected will have a long term effect on efficieny and production, as term effect on efficieny and production, as well as flexibility, cost and quality of goods.well as flexibility, cost and quality of goods.

TYPES OF PROCESS TYPES OF PROCESS STRATEGIESSTRATEGIES

Process Focus (Standard Register)Process Focus (Standard Register)

Repetitive Focus (Harley Davidson)Repetitive Focus (Harley Davidson)

Product Focus (Nucor Steel)Product Focus (Nucor Steel)

Mass Customization (DELL)Mass Customization (DELL)

PROCESS MATCHING WITH VOLUME PROCESS MATCHING WITH VOLUME & VARIETY& VARIETY

Low VolumeLow Volume High VolumeHigh VolumeRepetitive ProcessRepetitive Process

Process FocusProcess FocusProjects, Job ShopsProjects, Job Shops

Mass Mass CustomizationCustomization

Difficult to achieve Difficult to achieve but huge rewardsbut huge rewards

RepetitiveRepetitiveAssembly linesAssembly lines

Product FocusProduct FocusBakery, Steel, GlassBakery, Steel, Glass

Poor StrategyPoor StrategyVariable Costs HighVariable Costs High

High variety

Changes in Modules

Changes in attributes

vari

ety

volume

PROCESS FOCUSPROCESS FOCUS

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

High degree of product flexibilityHigh degree of product flexibility High variable costsHigh variable costs Extremely low utilization of facilitiesExtremely low utilization of facilities Examples: restaurants, hospitals, Examples: restaurants, hospitals,

machine shopsmachine shops

REPETITIVE FOCUSREPETITIVE FOCUS

A product oriented production process A product oriented production process that uses modules. It’s the classic that uses modules. It’s the classic assembly lineassembly line

More structured and less flexible than More structured and less flexible than product focusproduct focus

Examples: Automobiles, Home Examples: Automobiles, Home Appliances, Fast FoodAppliances, Fast Food

PRODUCT FOCUSPRODUCT FOCUS A production facility organized around A production facility organized around

products; a product oriented, high products; a product oriented, high volume, low variety processvolume, low variety process

Also called Continuous Processes, as Also called Continuous Processes, as they have very long continuous they have very long continuous process runsprocess runs

Standardization and effective quality Standardization and effective quality control essentialcontrol essential

Examples: glass, paper, bulbs, drinks, Examples: glass, paper, bulbs, drinks, cornea transplantscornea transplants

MASS CUSTOMIZATION FOCUSMASS CUSTOMIZATION FOCUS Rapid, low-cost production that caters to Rapid, low-cost production that caters to

constantly changing unique customer constantly changing unique customer desiresdesires

There is high demand for individualized There is high demand for individualized goods and services, e.g. automobiles, goods and services, e.g. automobiles, movies, cereals etcmovies, cereals etc

Economically producing precisely what the Economically producing precisely what the customer wants and when he wants itcustomer wants and when he wants it

It provides the variety of process focused It provides the variety of process focused (low volume) manufacture to product (low volume) manufacture to product focused (high volume) productionfocused (high volume) production

Examples: DELL, NIKE Examples: DELL, NIKE

COMPARISON OF PROCESS COMPARISON OF PROCESS STRATEGIESSTRATEGIES

Each strategy, when matched to Each strategy, when matched to volume and variety can produce a low volume and variety can produce a low cost advantage, fast responsiveness cost advantage, fast responsiveness and differentiated productsand differentiated products

PROCESS ANALYSIS AND PROCESS ANALYSIS AND DESIGNDESIGN

Questions to be asked:Questions to be asked: Is the process designed and capable to Is the process designed and capable to

achieve competitive advantage in terms achieve competitive advantage in terms of low cost, response and differentiation?of low cost, response and differentiation?

Does the process eliminate steps that do Does the process eliminate steps that do not add value?not add value?

Does the process maximize customer Does the process maximize customer value as perceived by the customer?value as perceived by the customer?

Will the process win orders?Will the process win orders?

TOOLS FOR PROCESS ANALYSISTOOLS FOR PROCESS ANALYSIS Flow Diagrams:Flow Diagrams: A drawing used to analyse A drawing used to analyse

movement of people and materialmovement of people and material Time-Function Mapping:Time-Function Mapping: A flow diagram but A flow diagram but

with time added on the horizontal axiswith time added on the horizontal axis Process Chart:Process Chart: Charts using symbols to Charts using symbols to

analyse the movement of people or analyse the movement of people or materialmaterial

Service Blueprinting:Service Blueprinting: A process analysis A process analysis technique that focuses on the customer technique that focuses on the customer and supplier’s interaction with the customerand supplier’s interaction with the customer

SERVICE PROCESS DESIGNSERVICE PROCESS DESIGN

Mass ServiceMass Service

Professional ServiceProfessional Service

Ways to improve service processes:Ways to improve service processes: LayoutLayout Human ResourcesHuman Resources TechnologyTechnology

PROCESS REENGINEERINGPROCESS REENGINEERING It is the fundamental rethinking and It is the fundamental rethinking and

radical redesign of business radical redesign of business processes to bring about dramatic processes to bring about dramatic improvements in performanceimprovements in performance

It can be a factory layout, a It can be a factory layout, a purchasing procedure or an entirely purchasing procedure or an entirely new way of making productsnew way of making products

It focuses on dramatic improvements It focuses on dramatic improvements in cost, time and value.in cost, time and value.

ENVIRONMENTALLY FRIENDLY ENVIRONMENTALLY FRIENDLY PROCESSESPROCESSES

Environmentally friendly ingredientsEnvironmentally friendly ingredients Elimination of animal testingElimination of animal testing Energy efficiencyEnergy efficiency Recyclable products and packagingRecyclable products and packaging Renewable energy sourcesRenewable energy sources Low effluent emission designsLow effluent emission designs

SELECTION OF EQUIPMENT & SELECTION OF EQUIPMENT & TECHNOLOGYTECHNOLOGY

Considerations:Considerations: CostCost QualityQuality CapacityCapacity FlexibilityFlexibility

DESIGN CAPACITYDESIGN CAPACITY

Regardless of process type, OMs have Regardless of process type, OMs have to determine capacityto determine capacity

It is a large portion of fixed costIt is a large portion of fixed cost Too large plant, increased downtimeToo large plant, increased downtime Too small, customers lostToo small, customers lost It is the maximum theoretical output It is the maximum theoretical output

of a system in a given periodof a system in a given period

EFFECTIVE CAPACITYEFFECTIVE CAPACITY The capacity a firm can expect to achieve The capacity a firm can expect to achieve

given its product mix, methods of scheduling, given its product mix, methods of scheduling, maintenance and standards of qualitymaintenance and standards of quality

It is often lower than design capacity as the It is often lower than design capacity as the plant may have been designed for a different plant may have been designed for a different product mixproduct mix

Measures of system performance:Measures of system performance:

Utilization = Utilization = Actual OutputActual Output Design CapacityDesign Capacity

Efficiency = Efficiency = Actual OutputActual Output Effective CapacityEffective Capacity

FORECASTING CAPACITY FORECASTING CAPACITY REQUIREMENTSREQUIREMENTS

Determining future capacity requirements can Determining future capacity requirements can be a complicated procedure as it is based on be a complicated procedure as it is based on future demand.future demand.

When demand can be forecast with a When demand can be forecast with a reasonable degree of precision, determining reasonable degree of precision, determining capacity reqs. Can be straightforward.capacity reqs. Can be straightforward.

First Phase: First Phase: Future demand is forecastFuture demand is forecast Second Phase:Second Phase: Forecast used for capacity Forecast used for capacity

requirementsrequirements

MANAGING DEMANDMANAGING DEMAND Demand exceeds Capacity:Demand exceeds Capacity:

The firm may be able to curtail demand by The firm may be able to curtail demand by raising prices, scheduling long lead times and raising prices, scheduling long lead times and discouraging small margins. Long term solution discouraging small margins. Long term solution is capacity increase.is capacity increase.

Capacity exceeds Demand:Capacity exceeds Demand: The firm may stimulate demand by price The firm may stimulate demand by price

reductions or aggressive marketingreductions or aggressive marketing Adjusting to Seasonal Demands:Adjusting to Seasonal Demands:

The firm may offer products with complimentary The firm may offer products with complimentary demand patternsdemand patterns

BREAK-EVEN ANALYSISBREAK-EVEN ANALYSIS

Break Even Point:Break Even Point: The point in cash terms where the costs The point in cash terms where the costs

equal revenues.equal revenues.

Fixed Costs:Fixed Costs: Costs that continue even if no units are Costs that continue even if no units are

produced, e.g. debt, taxes, depreciationproduced, e.g. debt, taxes, depreciation

Variable Costs:Variable Costs: Costs that vary with the volume of units Costs that vary with the volume of units

produced, e.g. labour, materialsproduced, e.g. labour, materials

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