OPERATIONS MANAGEMENT

Lecture # 6:

PROCESS & CAPACITY DESIGN

Humayun Akhtar

INTRODUCTION
We have studied selection, definition and
design of goods and services
Now we will look at their production
It is important to find the best way to
produce

PROCESS STRATEGY
It is an organizations approach to transform
resources into goods and services.
The main objective is to find a way to produce
products and services that meet customers
requirements / and product specifications
within cost and other managerial constraints.
The process thus selected will have a long term
effect on efficieny and production, as well as
flexibility, cost and quality of goods.

TYPES OF PROCESS STRATEGIES

Process Focus (Standard Register)
Repetitive Focus (Harley Davidson)
Product Focus (Nucor Steel)
Mass Customization (DELL)

PROCESS MATCHING WITH VOLUME &

VARIETY
Repetitive Process

Low Volume

High variety

Process Focus

High Volume
Mass
Customization

Projects, Job Shops

variety

Difficult to achieve
but huge rewards

Changes in
Modules

Changes in
attributes

Repetitive

Assembly lines

Poor Strategy

Variable Costs High

Product Focus

Bakery, Steel, Glass

volume

PROCESS FOCUS
A production facility organized around
processes to facilitate low-volume, high
variety production
High degree of product flexibility
High variable costs
Extremely low utilization of facilities
Examples: restaurants, hospitals, machine
shops

REPETITIVE FOCUS
A product oriented production process
that uses modules. Its the classic
assembly line
More structured and less flexible than
product focus
Examples: Automobiles, Home Appliances,
Fast Food

PRODUCT FOCUS
A production facility organized around
products; a product oriented, high
volume, low variety process
Also called Continuous Processes, as they
have very long continuous process runs
Standardization and effective quality
control essential
Examples: glass, paper, bulbs, drinks,
cornea transplants

MASS CUSTOMIZATION FOCUS

Rapid, low-cost production that caters to
constantly changing unique customer desires
There is high demand for individualized goods
and services, e.g. automobiles, movies, cereals
etc
Economically producing precisely what the
customer wants and when he wants it
It provides the variety of process focused (low
volume) manufacture to product focused (high
volume) production
Examples: DELL, NIKE

COMPARISON OF PROCESS STRATEGIES

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

PROCESS ANALYSIS AND DESIGN

Questions to be asked:
Is the process designed and capable to
achieve competitive advantage in terms of
low cost, response and differentiation?
Does the process eliminate steps that do not
add value?
Does the process maximize customer value as
perceived by the customer?
Will the process win orders?

TOOLS FOR PROCESS ANALYSIS

Flow Diagrams: A drawing used to analyse
movement of people and material
Time-Function Mapping: A flow diagram but with
time added on the horizontal axis
Process Chart: Charts using symbols to analyse
the movement of people or material
Service Blueprinting: A process analysis
technique that focuses on the customer and
suppliers interaction with the customer

SERVICE PROCESS DESIGN

Mass Service
Professional Service
Ways to improve service processes:

Layout
Human Resources
Technology

PROCESS REENGINEERING
It is the fundamental rethinking and
radical redesign of business processes to
bring about dramatic improvements in
performance
It can be a factory layout, a purchasing
procedure or an entirely new way of
making products
It focuses on dramatic improvements in
cost, time and value.

ENVIRONMENTALLY FRIENDLY PROCESSES

Environmentally friendly ingredients

Elimination of animal testing
Energy efficiency
Recyclable products and packaging
Renewable energy sources
Low effluent emission designs

SELECTION OF EQUIPMENT &

TECHNOLOGY
Considerations:

Cost
Quality
Capacity
Flexibility

DESIGN CAPACITY
Regardless of process type, OMs have to
determine capacity
It is a large portion of fixed cost
Too large plant, increased downtime
Too small, customers lost
It is the maximum theoretical output of a
system in a given period

EFFECTIVE CAPACITY
The capacity a firm can expect to achieve given its
product mix, methods of scheduling, maintenance
and standards of quality
It is often lower than design capacity as the plant
may have been designed for a different product mix
Measures of system performance:
Utilization = Actual Output
Design Capacity
Efficiency = Actual Output
Effective Capacity

FORECASTING CAPACITY REQUIREMENTS

Determining future capacity requirements can be a
complicated procedure as it is based on future
demand.
When demand can be forecast with a reasonable
degree of precision, determining capacity reqs. Can
be straightforward.
First Phase:
Future demand is forecast
Second Phase: Forecast used for capacity
requirements

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

Capacity exceeds Demand:

The firm may stimulate demand by price reductions or
aggressive marketing

Adjusting to Seasonal Demands:

The firm may offer products with complimentary
demand patterns

BREAK-EVEN ANALYSIS
Break Even Point:
The point in cash terms where the costs equal
revenues.

Fixed Costs:
Costs that continue even if no units are
produced, e.g. debt, taxes, depreciation

Variable Costs:
Costs that vary with the volume of units
produced, e.g. labour, materials

THANK YOU