15-12-2019

Service and Process Design

Dr. Rachita Gupta

Service Process Matrix

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Tools for Service Design

• Service blueprinting • Quantitative techniques
• line of influence
• line of interaction
• line of visibility
• line of support
• Front-office/Back-office
activities

Service Blueprinting

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Elements of Waiting Line Analysis

• Operating characteristics
• average values for characteristics that describe
performance of waiting line system
• Queue
• a single waiting line
• Waiting line system
• consists of arrivals, servers, and waiting line
structure
• Calling population
• source of customers; infinite or finite

Process Selection
• Projects
• one-of-a-kind production of a product to customer order
• 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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Product-Process Matrix

Process Selection With Break-Even Analysis

• Study cost trade-offs based on demand volume
• Cost
• Fixed costs
• constant regardless of the number of units produced
• Variable costs
• vary with the volume of units produced
• Revenue
• price at which an item is sold
• Total revenue
• price times volume sold
• Profit
• difference between total revenue and total cost
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Process Selection With Break-Even Analysis

Total cost = fixed cost + total variable cost
TC = cf + vcv
Total revenue = volume x price
TR = vp
Profit = total revenue - total cost
Z = TR – TC = vp - (cf + vcv)

cf = fixed cost
V = volume (i.e., number of units produced and sold)
cv = variable cost per unit
p = price per unit

Process Selection With

Break-Even Analysis

TR = TC
vp = cf + vcv
vp - vcv = cf
v(p - cv) = cf
cf
v= p-c
v

Solving for Break-Even Point (Volume)

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Break-Even Analysis

Fixed cost = cf = $2,000

Variable cost = cv = $50 per unit
Price = p = $100 per unit

Break-even point is
cf 2000
v= p-c = = 40 units
v 100 - 50

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Break-Even Analysis: Graph

Dollars

$3,000 — Total
cost
line

$2,000 —

$1,000 —

Total
revenue
line
40 Units
Break-even point

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Process Selection – Multiple Processes

Process A Process B
$2,000 + $50v = $10,000 + $30v
$20v = $8,000
v = 400 units

Below or equal to 400, choose A

Above or equal to 400, choose B

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Multiple Processes – Indifference Point

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A firm is trying to determine how best to produce its newest product. The
product can be produced in-house using either process A or process B, or
purchased from a supplier. Cost data is given below. For what levels of
demand should each process be chosen?

Fixed Cost Variable Cost

Process A $ 8000 $ 10
Process B $20,000 $ 4
Supplier $0 $20

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Supplier vs. Process A

$20 x  $8, 0 00  $ 10 x

$10 x  $8, 000

x  800
Process A vs. Process B

$ 8, 0 0 0  $ 1 0 x  $ 2 0, 0 0 0  $ 4 x

$10 x  $1 2, 000  $4 x

$6 x  $12, 000

x  2, 000

Use the supplier when demand is less than 800 keyboards.

Use process B when demand is over 2,000 keyboards

Use Process A otherwise
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A company is opening a new plant and has not yet decided on the
type of process to employ. A labor-intensive process would cost
$10,000 for tools and equipment and $14 for labor and materials per
item produced. A more automated process costs $50,000in plant and
equipment but has a labor/material cost of $8 per item produced. A
fully automated process costs $300,000 for plant and equipment and
$2 per item produced. If process selection is to done solely on lowest
cost, what range of production would each process be chosen?
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Labor vs. Automated

Automated vs. Fully Automated
10,000  14x  50,000  8x
50, 000  8 x  300, 000  2 x
6x  40,000
6 x  250, 000

x  6,666.66 x  4 1, 6 6 6 .6 6

Labor vs. Fully Automated

10, 0 0 0  1 4 x  3 00, 0 0 0  2 x

12 x  2 90, 0 0 0

x  2 4,16 6 .6 6

Choose a labor-intensive process if demand is 6,666 or less.

Choose an automated process if demand is between 6,666 and 41,666.

Choose a fully automated process if demand is greater than or equal to 41,666.

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Process Analysis

• Tools

• Process Flowchart

• Diagrams

• Maps

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