6.

1 Process Choice

6.2 Selected Business Implications

ASSOC.PROF.TS.DR. EFFENDI MOHAMAD

FACULTY OF MFG ENGINEERING
UTeM

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Process Choice - Concept

Technical
Perspective

Markets

Business
Dimension
Of Manufacturing

Process Choice
(Alternative Manufacturing
Approaches)

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* 7.1 Process Choice
TYPICALLY, THREE STAGES
1. Decide on how much to buy from outside the company, which in turn
determines the make-in task

2. Identify the appropriate engineering-technology alternatives to complete

the task embodied in each product. This will concern bringing together
the make-in components with the bought-out items to produce the final
product specification at agreed levels of quality.

3. Choose between alternative manufacturing approaches to completing the

tasks embodied in providing the products involved. This will need to
reflect the market in which a product competes and the volumes
associated with those sales.

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THE MANUFACTURING FUNCTION

1. Take inputs (material, labor and energy) and convert them into products
2. The chosen process is the best able to support a company competitively in
the marketplace.
3. Focus:
a. Response to its markets,
b. Manufacturing capabilities & characteristics,
c. Level of investment required,
d. Unit costs involved,
e. Type of control & style of management
4. There are five (5) generic types of manufacturing process
a. Project
b. Job Shop
c. Batch
d. Line
e. Continuous processing
5. However, in many situations, hybrids have been developed that blur the
edges between one process and the next.

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THE GENERIC TYPES OF PROCESS CHOICE

1. Project

2. Job Shop

3. Batch

4. Line

5. Continuous Processing

Note:
Most businesses will select two or more processes as being appropriate for the products they
manufacture, which reflects the different volume requirements of components, subassemblies, and
products.

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PROJECT

1. Project basis
2. Product: unique, complex product (i.e., civil engineering contracts,
aerospace program, etc…)
3. Characteristic:
a. Customer-specified requirement
b. It is often too large to be moved or simply cannot be moved once
completed.
4. Business will also be concerned with determining how much of the
product to make away from site and how best to provide the parts or
sections that the structures made on site. These will, in turn, often be
produced using a different choice of process than project (i.e., CTRM-
Aviation).
Mill
Drill
Saw

Warehouse
Store

Project A
Assembly
Grind
Paint
Lathe

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JOB SHOP

1. Jobbing, unit, or One-off

▪ To meet the one-off order requirements of customers: purpose-built

tooling

▪ Requires the supplier to interpret the customer’s design and specification

and apply relatively high-level skills in the conversion process.

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BATCH

1. Provide similar items on a repeat basis, usually in large volumes –

quantity x work content – than associate with jobbing.

2. Example: CTRM-AC

Process A Process C

Warehouse
Assembly

Paint
Store

Process B Process D

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LINE

1. Investment is made to provide a process dedicated to the needs of a

single product or small range of products.

2. Example: Electronic industry

Saw Lathe Mill Drill

Warehouse
Saw Mill Drill Paint

Assembly
Store

Grind Mill Drill Paint

Weld Grind Lathe Drill

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CONTINUOUS PROCESSING

1. A basis material is passed through successive stages or operations and

refined or processed into one or more product

2. Example: Petrochemical, Food & Beverages industry

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MARKETS AND PRODUCT VOLUMES

1. Factor in choosing which of the five (5) processes is most appropriate to

manufacturing a product is volume (i.e., quantity x work content).

2. Result from forecasting

3. Flexibility

Note:
Other factors:

▪ Company status: SMI / MNC / GLC

▪ Characteristic of product: Make To Order / Make To Stock /Assemble To Order / Assemble To
Stock
▪ Main operation: Assembly Product / Manufacture Product / Original Equipment Manufacturer
(OEM)
▪ Process type: Job Shop / Batch / Repetitive / Continuous / Project
▪ Layout: Fixed Position / Process Oriented / Product Oriented
▪ Type of operation: Manual Operation / Semi Automation / Fully Automation

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 Process Choice

Project Civil Engineering

Jobbing Purpose built equipment

Batch Engineering

Line Consumer Durables

Continuous Petro-chemicals

Low High
Volume

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Volume v’s Variability

High Civil Engineering

Purpose built equipment

Variability

Engineering
Determined
by markets

Determined Consumer Durables

by company

Petro-chemicals
Low
Low High
Volume

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Process choice is a strategic decision
 Degree of support for order winning criteria
 Implications for the company’s infrastructure and investments

Choice of process should include assessment of business implications against

4 categories:
1. Products and markets
2. Manufacturing
3. Investment and cost
* 7.2 Selected Business Implications
4. Infrastructure

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▪ Manufacturing strategy design involves identification of, and appropriate
action on the degree of mismatch

1. Difficult - Decision is complex

2. Critical

* Process investment may be substantial

* Changes may be expensive and time consuming

Note:

Product Profiling can help support this activity.

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PROJECT

Product and market

▪ Companies choosing project processes sell capability. They sell their experience,
know-how, and skills to provide for a customer’s individual needs. Hence, they are in
a market that will require a high level of product change and new product
introductions. Its product range will be wide, with low unit-sales volume.

▪ It will win orders on aspects such as unique design capability or delivery speed, with
price normally acting as a qualifier rather than an order-winner. Through the
competitive nature of today’s markets, criteria such as quality and on-time delivery
have typically changed from being order-winners to qualifiers, as signaled by their
presence in all types of market.

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Manufacturing

▪ Oriented toward general purpose equipment, with a specialist plant to meet

particular product, design, or structural features, project processes are highly
flexible in coping with the low product volumes of the market and design changes
that will occur during production. Changes in capacity mix, or in total, can be made
incrementally, with the key tasks being on-time completion and meeting the
specification as laid down by the customer.

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Investment and cost
▪ The capital investment in plant and other processes will tend to be low. But there
will be some high-cost items, which may be purchased or hired, depending on their
potential usage, availability, costs, and similar factors. Due to the opportunity to
schedule materials, the inventory at this stage will be on an as-required basis.

▪ Work-in-process levels will be high, but normally much of this will be passed on to
the customers by stage payment agreements. In a make-to-order situation, finished
goods are small, with immediate delivery on completion. The key cost will normally
be materials, and sound purchasing arrangements, work-in-progress usage, and
control are essential.

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Infrastructure
▪ Due to the uncertainties in the process and the need to respond quickly to any
customer-derived changes, the organizational control should be decentralized and
supported by an entrepreneurial, rather than a bureaucratic, style. In addition, once
the business grows, the company must centrally control key items of plant, internal
specialist-engineering skills, and other purchased commodities or skills to ensure
they are effectively scheduled by the project and between projects.

▪ The production manager must understand the relevant technology to appreciate and
respond to unforeseen difficulties and problems, both technical and non-technical,
and to effectively use the local and centrally based specialist support.

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JOB SHOP SYSTEM

Product and market

▪ In essence, a jobbing business sells its capability to manufacture a costumer’s

requirements. It is restricted only by the range of skills of its work force or by its
processes. Thus, it handles a wide product range, competing on aspects other than
price. This does not mean that the business can charge any price it decides. But, if
the price it within what is reasonable for the market and that includes provisions for
additional delivery speed or post start modifications then price is a qualifier rather
than an order-winner.

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Manufacturing
▪ As a consequence of the products it provides and markets it serves, the
manufacturing process must be flexible. Its major concern is the utilization of its
labor skills, with processes being purchased to facilitate the skilled operator to
complete the task. Changes in capability can be achieved incrementally.

▪ The order-backlog position, which exists in make to order markets, will allow
manufacturing to make any foreseen adjustments in capacity ahead of time. The key
of manufacturing task is to complete the item to specification, on time, since
normally this one off item forms an integral part of some grater business whole, as
far as the customer is concerned.

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Investment and cost

▪ Although a lot of the equipment used in job shop system can be very expensive,
generally this investment is low, compared to batch and line system. In addition,
material will tend to be prophase only when an order has been received, with
material delivery forming part of the total lead time. Work in progress (WIP)
inventory will be high with all jobs, on average, being half-finished, while the make
to order nature of its business means that products are dispatched once completed.

▪ There will tend to be few specialist and other support functions, which leads to a
relatively lower plant / site overhead cost. This specialist tasks will be largely part
of the skilled worker’s role, which, together with the high labor content, normally
makes this the highest portion of total costs. Material costs will tend to be low; any
expensive materials involved will invariably be on a customer-supplied basis.

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Infrastructure
▪ Organizational control and style need to be decentralized and entrepreneurial in
nature, so as to respond quickly and effectively to meet the inherent flexibility
requirements of this market. For this reason, the production executive has to
understand the technology involved, as this forms an important part of his
contribution to business decision (e.g., in accepting an order, conforming a delivery
quotation, or providing part of the specialist inputs into a business).

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PRODUCTION LINE SYSTEM
Product and Markets

▪ A line process reflects the other end of the spectrum to job shop. The business sells
standard products that, to be successful, are sold on price and associated with large
customer orders. The level of product change is usually prescribed within a list of
option; outside this, the product is not normally available. Product design and
quality are determined at the outset to meet the perceived needs of the customer,
with on-time delivery a qualifier in today’s markets.

Manufacturing

▪ To provide low manufacturing costs, the process is dedicated to a predetermined

range of products. It is not geared to be flexible outside this range, due to the high
costs of change. This provides the opportunity to maintain the necessary quality
levels of plant utilization necessary to justify the investment and to arrange, due to
the stepped-change nature of capacity alterations.

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Investment and Cost
▪ The key to low manufacturing costs is high process investment, which goes hand in
hand with line. The volumes involved allow schedules of raw materials and
components to be planned with associated buffer stocks to cover the uncertainty of
supply. Work-in-process inventory will be low. Although finished goods will tend to be
high, many businesses, as part of a decision to keep inventory investment as low as
possible, will only make standard products against customer schedules or on receipt
of an order.

▪ Also, products offering many optional extras (e.g., motor vehicles) will tend to have
a policy of only making to a specific order. Hence, even in times of relatively low
sales, if the new auto selected includes an unusual set of options and thus is unlikely
to have been built in anticipation of an early sale, delivery will be delay. Finally, the
high areas of cost tend to be in materials, bought out components, and site / plant
overheads, with direct labor a relatively small part of the total.

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Infrastructure
▪ Since the choice of a line process represents a high-volume business, then a more
centralized organization, controlled by systems, is more appropriate. On the
manufacturing side, the key production executive task concerns the business /
people aspects of the job, with specialist support providing the technical know-how
for products and process.

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BATCH FLOW SYSTEM

Product and Markets

▪ Between job shop and line, comes batch. This is chosen to cover a very wide range
of volumes. Batch links the low / high volume special / standard products and make
to order / make to stock business.

▪ In most cases, the choice of batch, rather than job shop, as the appropriate way to
manufacture products signals that the production volumes (i.e., quantity x work
content) have increased and are of a repeat nature but insufficient to dedicate
processes solely to them, as would be the case in line. Some unique high volume
orders may also be done on a batch basis.

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▪ At the low volume end of batch, the processes are able to cope with a high degree
of product change and a high level of new product introductions. Here, the business
is oriented toward selling capability, with price starting to become a more important
order-winning criterion, due to the volume and repeat nature of the products.

▪ At the high volume end of batch, products have become increasingly standard, order
sizes larger, and product change lower, all of which illustrate the shift in product
market characteristics toward line. As mentioned earlier, market pressures have
typically changed quality conformance and on time delivery from order-winners to
qualifiers.

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Manufacturing

▪ It can be deduced from the product-market features that batch processes usually
have to cope with a wide range of products and production volumes. To handle this
task, these processes must be of a general nature, offering a high degree of
flexibility.

▪ With some items of equipment, the utilization will be low; with others, plant will
have purchased to meet the needs of a product or to offer distinct process
advantages (e.g., numerical control (NC) machines, machining centers, and flexible
manufacturing system, each of which will be described in a later section). In these
cases, high investment will normally be justified on a usage basis, and the aim will
be utilize the capacity to the fullest.

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Investment and Cost

▪ To be competitive in markets moving toward the high volume end, a business will
increasingly invest in its batch processes to achieve the low manufacturing cost
requirement of these markets. However, the major trade off associated with this
policy is the very high investment in work in progress inventory. The raw material,
components, and finished goods inventory levels will in turn be associated with the
make to order or make to stock nature of the business. As with all companies in
these mid-volume markets, the nearer it is to a make to order situation the more
the characteristics of that market will prevail. The makeup of total costs is no
exception.

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Infrastructure
▪ As the business move away from the low-volume end of the continuum, centralized
controls and a bureaucratic style become more appropriate. The increasing
complexity of this growth will change the nature of the specialist functions, with
design and production engineering becoming an ever-important support to
manufacturing. The production manager’s role will be bound up with appreciating
and recognizing the critical business issues involved, providing coordination
throughout, and spearheading the development of manufacturing systems.

▪ At the low volume end of batch, the characteristics, though not the same, will in
many situations, be more akin to those in job shop system. Therefore, it is important
to recognize the extent and trends in these changes and make the necessary
adjustments.

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CONTINUOUS PROCESSING SYSTEM
Product and Markets
▪ At the other end of the volume spectrum, companies that choose continuous
processing will sell a narrow range of standard products in markets where product
change and the rate of product introductions are low. The company will sell products
rather than capability, and large customer orders will be won principally on price.

Manufacturing
▪ In a price-sensitive market, the key manufacturing task will be low-cost production.
To help keep cost low, the process will be highly dedicated, with the cost structure
based on high production volumes, leading to a need to achieve high plant
utilization. The fixed nature of capacity also creates restrictions when increases or
decreases in output are required, with the decision based on whether or not to build
a new facility on the one hand or how often to run the plant on the other.

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Investment and Cost

▪ The high plant investment and high volume output associated with continuous
processing offers the opportunity to keep raw material inventory on a planned usage
basis, with built-in buffer stocks to cover uncertainties.

▪ Work-in-process will be relatively low in total output, with inventory in finished

goods high. This is because of the need to maintain output levels at all time against
fluctuating sales patterns. In many cases, however, finished goods are held in the
extensive distribution system of a business, and sometimes at its own retail outlets.

▪ Owing to the high process investment, direct labor costs are small, with the highest
cost usually in materials. Site / plant overheads in this process will be high owing to
the need to support the process and handle the high output levels involved.

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Infrastructure

▪ The high-volume nature of these businesses lends itself to a centralized,

bureaucratic organization control and style. Manufacturing performance is measured
against budgets, variance analysis is the order of the day, and investment proposals
are centrally monitored.

▪ An understanding of the process and product technology is important when running a

production unit, together with the ability to coordinate the high level of specialist
support provided for manufacturing.

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