Chapter :Four

4. Process selection and capacity planning

Process
Process is a group of related tasks with specific inputs and outputs. They exist to create value for
the customer, the shareholder, or society.
Process selection is the way an organization chooses to produce its goods or provide its services.
Process Selection refers to the strategic decision of selecting which kind of production processes
to have in the plant.
Essentially it involves the choice of technology and related issues, and it has major implications
for capacity planning, layout of facilities, equipment, and design of work systems.
Implications of Process selection
Capacity planning
Layout of facilities
Equipment
Design of work systems

Key aspects include in process selection :

i)Make or buy decisions: The extent to which the organization will produce goods or provide
services in-house as opposed to relying on outside organizations to produce or provide them.

The very first step in process planning is to consider whether to make or buy some or all of a
product or to subcontract some or all of a service.

A manufacturer might decide to purchase certain parts rather than make them; sometimes all
parts are purchased, with the manufacturer simply performing assembly operations.

If a decision is made to buy or contract, this lessens or eliminates the need for process selection.

Considerable factors in make or buy decision

In make or buy decisions, a number of factors are usually considered:

A)Available capacity. If an organization has available equipment, necessary skills, and time, it
often makes sense to produce an item or perform a service in-house. The additional costs would
be relatively small compared with those required to buy items or subcontract services.

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B) Expertise. If a firm lacks the expertise to do a job satisfactorily, buying might be a reasonable
alternative.

C) Quality considerations. Firms that specialize can usually offer higher quality than an
organization can attain itself. Conversely, special quality requirements or the ability to closely
monitor quality may cause an organization to perform a job itself.

D) The nature of demand. When demand for an item is high and steady, the organization is
often better off doing the work itself. However, wide fluctuations in demand or small orders
are usually better handled by specialists who are able to combine orders from multiple sources,
which results in higher volume and tend to offset individual buyer fluctuations.

E) Cost. Any cost savings achieved from buying or making must be weighed against the
preceding factors. Cost savings might come from the item itself or from transportation cost
savings. If the organization decides to perform some or all of the processing, then the issue of
process selection becomes important.

ii). Capital intensity: The mix of equipment and labor that will be used by the organization.
iii). Process flexibility: The degree to which the system can be adjusted to changes in processing
requirements due to such factors as changes in product or service design, changes in volume
processed, and changes in technology.
Types of Processes
All processes can be grouped into two broad categories:
1. Intermittent Operations: are Processes used to produce a variety of products with different
processing requirements in lower volumes. Examples are an auto body shop, a tool and die shop,
or a healthcare facility. Because different products have different processing needs, there is no
standard route that all products take through the facility. Instead, resources are grouped by
function and the product is routed to each resource as needed.
Equipment in this type of environment is more general-purpose to satisfy different processing
requirements. Volume of goods produced is directly tied to the number of customer orders.
To be able to produce products with different processing requirements, intermittent operations
tend to be labor intensive rather than capital intensive.
2. Repetitive Operations: Processes used to produce one or a few standardized products in
high volume. Examples are a typical assembly line, cafeteria, or automatic car wash. Resources
are organized in a line flow to efficiently accommodate production of the product. In this
environment it is possible to arrange resources in a line because there is only one type of product.

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 The volume produced is usually based on a forecast of future demands rather than on direct
customer orders.
To efficiently produce a large volume of one type of product, these operations tend to be capital
intensive rather than labor intensive. An example is “mass-production” operations, which usually
have much invested in their facilities and equipment to provide a high degree of product
consistency. Often these facilities rely on automation and technology to improve efficiency and
increase output rather than on labor skill.

Table: 3.1 Differences between Intermittent and Repetitive Operations

Categories of Intermittent Operations
According to product volume and degree of product standardization operation process cab is further
divided like:-
I. Project(custom Job shops) process: A type of process used to make a one-at-a-time product
exactly to customer specifications. These processes are used when there is high customization
and low product volume, because each product is different. Examples can be seen in
construction, shipbuilding, medical procedures, and creation of artwork, custom tailoring, and
interior design also auto repair shop since each car is handled on an individual basis. With
project processes the customer is usually involved in deciding on the design of the product. The
artistic baker you hired to bake a wedding cake to your specifications uses a project process.

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 What distinguishes the job shop operation from batch processing is that the job requirements
often vary considerably from job to job. This means that the sequence of processing steps and the
job content of the steps also vary considerably.
NB. A job shop is designed to handle a greater variety of job requirements than batch processing.
II. Batch process: A type of process used to produce a small quantity of products in groups or
batches based on customer orders or specifications. They are also known as job shops. The
volumes of each product produced are still small, and there can still be a high degree of
customization. Examples can be seen in bakeries, education, and printing shops. The classes
you are taking at the university use a batch process.
Categories of Repetitive operations
I. Line(Semi continuous) process: A type of process used to produce a large volume of a
standardized product (highly similar but not identical).
They are also known as flow shops, flow lines, or assembly lines. With line processes the
product that is produced is made in high volume with little or no customization(allows for
some variety). A typical is assembly line that produces everything from cars, computers, and
television sets, shoes, candy bars, even food items.
Skill requirements of workers are usually fairly low.Equipment tends to be highly specialized,
which tends to make it expensive relative to more general- purpose equipment, but the high
volumes of output result in a low cost per unit.
As a general rule, goods produced by these systems are made for inventory rather than
customer order.
II. Continuous process: A type of process that operates continually to produce a very high
volume of a fully standardized(highly uniform) product or service is produced or rendered.
Examples include chemical processing ,oil refineries, water treatment plants, photographic
film and certain paint facilities . They usually have a single input and a limited number of
outputs. Also, these facilities are usually highly capital intensive and automated with often
provide continuous services .Products are measured on a continuous basis rather than counted
as discrete units.

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 Types of processes based on product volume and product standardization

3.3 Strategic Capacity Planning

 Capacity is the maximum output rate that can be achieved by a facility. The facility may be
an entire organization, a division, or only one machine. Planning for capacity in a company is
usually performed at two levels, each corresponding to either strategic or tactical decisions.
 Capacity planning is the process of establishing the output rate that can be achieved by a
facility. If a company does not plan its capacity correctly, it may find that it either does not
have enough output capability to meet customer demands or has too much capacity sitting
idle. In university example, that would mean either not being able to offer enough courses to
accommodate all students or having too few students in the classrooms. Planning for capacity
is important if a company wants to grow and take full advantage of demand.

Measuring Capacity
Capacity units of measurement are often very different(no one best way to measure capacity).
Each business can measure capacity in different ways and that capacity can be measured using
either inputs or outputs.

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 Examples of Different Capacity Measures
Necessary information in measuring capacity
I. Amount of available capacity: will help us understand how much capacity our facility has.
II. Effectiveness of capacity use: will tell us how effectively we are using our available capacity.
The most common measures of capacity (two)
A. Design capacity: The maximum output rate that can be achieved by a facility under ideal
conditions. Design capacity can be sustained only for a relatively short period of time.
Example, a bakery can make 30 custom cakes per day when pushed at holiday time.
B. Effective capacity: The maximum output rate that can be sustained under normal(realistic)
conditions. Include realistic work schedules and breaks, regular staff levels, scheduled
machine maintenance, and none of the temporary measures that are used to achieve design
capacity.Example on the average this bakery can make 20 custom cakes per day. Effective
capacity is usually lower than design capacity.
Measuring Effectiveness of Capacity Use or Calculating Capacity Utilization
Capacity utilization Percentage measure of how well available capacity is being used.

Example: we have established that design capacity is 30 pies per day and effective capacity is 20
pies per day. Currently, the bakery is producing 27 pies per day. What is the bakery’s capacity
utilization relative to both design and effective capacity?

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 Determinants of effective capacity:

Capacity Considerations
Important implications of capacity that a company needs to consider when changing its
capacity are:
A. Best operating level: The volume of output that results in the lowest average unit cost.
B. Economies of scale: A condition in which the average cost of a unit produced is reduced
as the amount of output is increased.
C. Dis-economies of scale: A condition in which the cost of each additional unit made
increases. It occur at a point beyond the best operating level, when the cost of each
additional unit made increases. Operating a facility close to its best operating level is
clearly important because of the impact on costs. Dis- economies of scale often caused
by congestion (overwhelming the process with too much work-in-process) and
scheduling complexity.

Different operating levels of a facility

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 D. Focused Factories: Facilities can respond more efficiently to demand if they are small,
specialized, and focused on a narrow set of objectives.
E. Subcontractor Networks: another alternative to having a large production facility is to
develop a large network of subcontractors and suppliers who perform a number of tasks.
This is one of the fastest-growing trends today.
Making Capacity Planning Decisions
There are three-step procedure for making capacity planning decisions.
Step 1: Identify Capacity Requirements: identify the levels of capacity needed by the company
now, as well as in the future. Needs to identify the gap between available capacity and
future requirements or demand based on forecasting.
Step 2: Develop Capacity Alternatives: the company needs to develop a set of alternatives that
would enable it to meet future capacity needs.
Step 3: Evaluate Capacity Alternatives: The last step in the procedure is to evaluate the
capacity alternatives and select the one alternative that will best meet the company’s
requirements. There are many tools to assist in evaluating alternatives most popular tool
is Decision Trees. Decision Trees developed by drawing from left to right and is a
modeling tool for evaluating sequential decisions which, identifies the alternatives at each
point in time (decision points), estimate probable consequences of each decision (chance
events) & the ultimate outcomes (e.g.: profit or loss).