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Process selection and capacity planning influence system

CHAPTER FOUR design

PROCESS SELECTION AND

CAPCITY PLANNING

Contents:
 Process Selection
 Capacity Planning
 Developing Capacity Alternatives

Cont’d
Process Selection  How an organization approaches process
 Process: is a method used in an industry for doing or selection is determined by the organization’s
making something. process strategy.
 Process is any part of an organization that takes  Key aspects include:
inputs and transforms them into outputs that, it is Capital intensity: the mix of equipment and
hoped, are of greater value to the organization than the labor that will be used by the organization.
original inputs.
Process flexibility: the degree to which the
 All processes convert inputs into outputs. system can be adjusted to changes in
 Process selection: refers to the way an organization processing requirements due to such factors as;
chooses to produce its goods or provide its services.
changes in product or service design, changes
in volume processed, and changes in
• Essentially it involves the choice of technology and technology.
related issues.

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The common basic processes Cont’d

The common basic processes are:
 Process choice is demand driven. Three primary
 Conversion: For instance, iron ore to iron, crude oil to gas and so on.
questions bear on process selection:
 Fabrication: This process alters the shape and form of the
1. How much variety in products or services will the
material. For example, a steel sheet may be changed into a car fender.
system need to handle?
 Assembly: Subcomponents and parts are assembled into
products. For example, an engine cylinder, piston and piston rings may
2. What degree of equipment flexibility will be
be assembled to form an engine subassembly. needed?
 Testing: While this is not a basic process, it is used so often as a 3. What is the expected volume of output?
standalone process, that it has been included here. Testing may be Answers to these questions will serve as a guide to
carried out on any of the quality dimensions of a product or selecting an appropriate process.
service.

The impact of strategic performance objectives on process design objectives and

Factors Affecting Process Design performance

Capital intensity: Processes may be labor-intensive or capital-

intensive.
Vertical integration: Vertical integration is the degree to which
an organization will produce the inputs and control the outputs
of its production processes.
Flexibility: This can be one of the competitive priorities for an
organization
Quality level and degree of customer contact
Variety and volume: The relationship between process
structure and volume requirements is often represented on a
product-process matrix.
Investment: Investment is very high in setting up continuous
and flow production as compared to job shop and batch
production methods.
Economic analysis: An economic analysis must be carried out
while making a choice of processes. Often the choice involves
make-or-buy decisions.

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 Process Selection has major implications

Importance of Process Selection Decisions
for:
 Capacity planning  They are strategic in nature demanding
 Layout of facilities special coordination among the functional
areas.
 Equipment and
 They greatly affect the business’s ability to
 Design of work systems realize its mission.
A good relation has to prevail among:  They affect it ability to experience a good
 Operations strategy competitive advantage.
 New product development and  They affect a firm’s ability to meet customers’
 Process selection demand.

Process Selection…
 Process decisions are affected by the operations
Types of Processes
strategy which addresses the issues of:  All processes can be grouped into two broad categories:
1. Make or Buy decision
A. Repetitive (Continuous) operations
 The make or buy decision is the perquisite for process selection.
Factors considered in the make or buy decision are: B. Intermittent operations and
Available capacity A. Repetitive (Continuous) Processes
Available and required expertise  Continuous processes are employed when a highly
Quality consideration uniform product or service is produced or rendered.
The nature of demand  Continuous processes are characterized by:
Production and Purchase Cost
 Perfect product standardization
2. Process Flexibility and
 Very high product volume
3. Degree of automation or capital intensity
 Specialized purpose or function

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Cont’d B. Intermittent Processes

 Expensive process equipments
 Processes used to produce a variety of
 Logical arrangement of the equipments
products with different processing
 Products are continuous rather than requirements in lower volumes.
discrete.
 Volume is much lower than in continuous
 Shut-downs and start-ups are coasty and semi-continuous systems.
 High vulnerable to shutdowns  The equipments are general purpose.
 Low personnel skills required  Workers are semi skilled and skilled
 Wide span of supervision  Span of supervision is narrow

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 A job shop process: A Midwestern hospital medical team

Process Flow Structures performs a diagnostic procedure involving a cardiac
 A process flow structures refers to how a factory catheterization.
organizes material flow using one or more of the
process technologies (conversion, fabrication or
assembly).
Projects: one-of-a-kind production of a product to
customer order.
Job shop/batch production: process many
different jobs at the same time in groups or batches.
Mass production: produce large volumes of a
standard product for a mass market.
Continuous production: used for very-high volume
commodity products.

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A batch process: Menu items are prepared in batches,

in the kitchen of the Spago Restaurant in the Forum at  A repetitive process: Motorcycles on an assembly
Caesar’s Palace, Las Vegas, Nevada. line with parts added in a sequential order.

 A continuous process: An oil refinery performs a Intermittent and Repetitive Operations

continuous process, mixing and separating crude oil into
gas, fuel oil, chemicals, and many other products.

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Underlying Process Relationship between Volume and

Standardization Continuum Cont’d

Process mapping symbols Process Design and Selection for Services

The connotations for process design for services are
vastly different as compared to products.
 There are three broad approaches to delivering on-
site service.
1. The production-line approach: a manufacturing
process rather than as a service process.
 Concentrates on things rather than people.
It aims at the rapid delivery of a uniform, high quality
mix of prepared foods in an environment of obvious
cleanliness, order and cheerful courtesy.
 Everything is built into the system through attention
to total design and facilities planning.

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Cont’d Capacity Planning

2. The self-service approach: Automatic teller
machines, salad bars, buffet counters and so on shift  Capacity: is the upper limit or ceiling on the load that
some of the burden of service to the customer. an operating unit can handle during a specified time
period.
3. The personal attention approach: Hotel  The throughput, or the number of units a facility can
services provided to guests is a typical example of hold, receive, store, or produce in a period of time.
personal attention approach.  The objective of strategic capacity planning is to provide
 Good hotels treat the customer as king and an approach for determining the overall capacity level of
capital intensive resource /facilities, equipment, and
look after all his requirements. overall labor force size/ that best support the company’s
long range competitive strategy.
 The 'feel good' that is created in the customer
goes a long way to promoting the business. Capacity planning: is the process of establishing the
output rate that can be achieved by a facility.

The four Vs of capacity

 Production managers are more concerned about
the capacity for the following reasons: Volume: total demand for output
 Sufficient capacity is required to meet the
customers demand in time. Variety: range of output
Capacity affects the cost efficiency of operations.
Capacity affects the scheduling system. Variation: change in total demand
Capacity creation requires an investment.
Capacity planning is the first step when an
Variability: change in demand for each
organization decides to produce more or new type of output
products.

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Types of Capacity Cont’d

 Designed Capacity: The maximum capacity that
can be achieved under ideal conditions.  System capacity: System capacity is the
 Effective Capacity: The percent of design capacity maximum output of the specific product or
actually expected
product mix the system of workers and
machines is capable of producing as an
 Rated Capacity: Maximum usable capacity of a integrated whole.
particular facility.
 System capacity is less than design capacity or
• RC = (Design Cap.)(Effective Cap.)(Efficiency) at the most equal, because of the limitation of
Licensed capacity: Capacity licensed by the various product mix, quality specification, breakdowns.
regulatory agencies or government authorities. This is the
limitation on the output exercised by the government.
System Efficiency (SE) = (Actual output / System
Installed capacity: The capacity provided at the time of capacity)
installation of the plant is called installed capacity.

Capacity Utilization Strategies of Capacity Planning

 Capacity requirements can be evaluated from two
 Utilization: is a measure relating design capacity to perspectives.
output. It is calculated as follows: Long-Term Capacity Strategies: Long-term capacity
requirements are more difficult to determine because the
1. Utilization = actual output per time period future demand and technology are uncertain.
 Forecasting for five or ten years into the future is more
Design capacity per time period risky and difficult.
 Following parameters will affect long range capacity
 Efficiency: is a measure of the use of decisions.
effective capacity in producing a particular Multiple products: Company’s produce more than one
product using the same facilities in order to increase the profit.
result. It is given by the formula: Phasing in capacity: In high technology industries, and in
industries where technology developments are very fast, the
 Efficiency = actual output per time period rate of obsolescence is high.
Effective capacity per time period Phasing out capacity: The outdated manufacturing facilities
cause excessive plant closures and down time.

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Cont’d Cont’d
Short-Term Capacity Strategies: Managers often use • Employment level (hiring or firing): Hire additional
forecasts of product demand to estimate the short- employees during peak demand period and lay off
term workload the facility must handle. employees as demand decreases.
 Managers looking ahead up to 12 months, anticipate • Employee training: Develop multi-skilled employees
output requirements for different products, and services. through training so that they can be rotated among
 The short-term capacity strategies are: different jobs. The multi-skilling helps as an alternative to
• Inventories: Stock of finished goods during slack hiring employees.
periods to meet the demand during peak period. • Subcontracting: During peak periods, hire the capacity
• Backlog: During peak periods, the willing customers of other firms temporarily to make the component parts or
are requested to wait and their orders are fulfilled after products.
a peak demand period. • Process design: Change job contents by redesigning the
job.

Capacity Planning Process Matching Capacity to Demand

 Demand exceeds capacity

 Curtail demand by raising prices,
scheduling longer lead time
Long term solution is to increase capacity
 Capacity exceeds demand
 Stimulate market
 Product changes
 Adjusting to seasonal demands
 Produce products with complementary
demand patterns

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Tactics for Matching Capacity to Demand

Making staffing changes (increasing or
decreasing the number of employees or shifts)
Adjusting equipment
Purchasing additional machinery
Selling or leasing out existing equipment
Improving processes to increase throughput
Redesigning products to facilitate more throughput
Adding process flexibility to meet changing product
preferences
Closing facilities

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