OPERATIONS MANAGEMENT
Lecture # 6:
PROCESS & CAPACITY DESIGN
Humayun Akhtar
RIPHAH INTERNATIONAL UNIVERSITY

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 organization’s approach to transform
resources into goods and services.
 The main objective is to find a way to produce
products and services that meet customer’s
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
Low Volume High Volume
Repetitive Process
Process Focus
Projects, Job Shops
Mass
Customization
Difficult to achieve
but huge rewards
Repetitive
Assembly lines
Product Focus
Bakery, Steel, Glass
Poor Strategy
Variable Costs High
High variety
Changes in
Modules
Changes in
attributes
variety
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. It’s 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
supplier’s 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

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