Process Types & Selection

From Function to Process

Product Development

Manufacturing
Purchasing
Accounting

Order Fulfillment

Sales
Supply Chain Management

Customer Service

Function Process

6-2
 Process Planning and Design System
Inputs:
• Product/Service Information
• Production System Information
• Operations Strategy

Process Planning & Design:

Process-Type Selection
Outputs:
Vertical Integration Studies
Process Technology
Process/Product Studies
Facilities
Equipment Studies
Personnel Estimates
Production Procedures Studies
Facilities Studies
 Linking Product Design & Process Planning
How many to make?
Design Spec & Reqmnt (Forecast & orders)
Product Design

Functional Design

Product Design

Drg. & Spec of what to make?

Product Analysis (Ass’ly & flow )charting

Process Planning

Make or buy

Process Decision ( selection)

Route sheet & Opn Sheet Work place & tool design
(specs of how to manufacture)

Modification of process plans due to layout, quality preference

Mfg

& m/c availability

 Definitions
System: The controls that are applied to a process to ensure that
it is operating efficiently and effectively.
Process: Any activity or group of activities that takes an input,
adds value to it, and provides an output to an internal or
external customer. Processes use an organization's resources
to provide definitive results.
Business process: All service processes and processes that
support production processes (e.g., order process,
engineering change process, payroll process, manufacturing
process design). A business process consists of a group of
logically related tasks that use the resources of the
organization to provide defined results in support of the
organization's objectives.
The impact of strategic performance objectives
on process design objectives and performance
 Process Planning
• Process
– Group of related tasks with specific inputs &
outputs
• Process design
– tasks to be done & how they are coordinated
among functions, people, & organizations
• Process strategy
– an organization’s overall approach for physically
producing goods and services
• Process planning
– converts designs into workable instructions for
manufacture or delivery
6-7
 Process Strategy
• Vertical integration
– extent to which firm will produce inputs and control
outputs of each stage of production process
• Capital intensity
– mix of capital (i.e., equipment, automation) and labor
resources used in production process
• Process flexibility
– ease with which resources can be adjusted in response to
changes in demand, technology, products or services, and
resource availability
• Customer involvement
– role of customer in production process
 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
 Videos
Mass production/Assembly Line
https://www.youtube.com/watch?v=_KXJ0LXfQws
https://www.youtube.com/watch?v=ebOVvs9b68A

Batch Production
Batch Production - Phantom Rolls Royce https://www.youtube.com/watch?v=XKGak-4yh-8
Biscuit production line https://www.youtube.com/watch?v=arwptG-_pwM
Barmak bakery bread production line https://www.youtube.com/watch?v=qTIkYw7N0Vs

Cellular Manufacturing
Jones Sign Company https://www.youtube.com/watch?v=ktoi4eZEot8
https://www.youtube.com/watch?v=AQNpq9TJmZ8

Cellular Manufacturing 2014 Denimatrix https://www.youtube.com/watch?v=c50_lAIfzsk

Lean Cell https://www.youtube.com/watch?v=AUPji7L9aSs

Garment industry: https://www.youtube.com/watch?v=uVoQJrz0sH8

Home Work
• Draw a process flow dig. For the above Garment Mfg facility
• Identify different process types at different stages of Jeans manufacturing?
 Product-Process Matrix

Copyright 2011 John Wiley & Sons, Inc. 6-11

 Process Design Depends
Large on Product Diversity and Batch Size
Product
Focused,
Dedicated
Systems
Batch Size

Product
Focused,
Batch
System
Cellular
Manufacturing Process-Focused,
Small

Job Shop

Few Number of Product Designs Many

 Types of Processes
PROJECT BATCH MASS CONT.

Made-to- Made-to-
Type of product Unique order stock Commodity
(customized) (standardized )

One-at-a- Few
Type of Mass Mass
customer time individual
market market
customers

Product
demand Infrequent Fluctuates Stable Very stable

Copyright 2011 John Wiley &

6-13
Sons, Inc.
 Types of Processes
PROJECT BATCH MASS CONT.

Demand Low to
Very low High Very high
volume medium

No. of Infinite
different Many, varied Few Very few
products variety

Repetitive, Continuous,
Production Long-term Discrete, job
system assembly process
project shops
lines industries

Copyright 2011 John Wiley &

6-14
Sons, Inc.
 Types of Processes
PROJECT BATCH MASS CONT.

Equipment Varied General- Special- Highly

purpose purpose automated

Mixing,
Primary type Specialized
of work Fabrication Assembly treating,
contracts
refining

Experts, Limited
Worker skills Wide range Equipment
crafts- range of
of skills monitors
persons skills

Copyright 2011 John Wiley &

6-15
Sons, Inc.
 Types of Processes
PROJECT BATCH MASS CONT.

Efficiency, Highly efficient,

Custom work, latest Flexibility,
Advantages technology speed, large capacity,
quality
low cost ease of control

Capital
Non-repetitive, Costly, slow, Difficult to change,
Dis- investment;
small customer difficult to far-reaching errors,
advantages lack of
base, expensive manage limited variety
responsiveness
Machine shops, Automobiles,
Construction, print shops, televisions, Paint, chemicals,
Examples shipbuilding,
bakeries, computers, foodstuffs
spacecraft
education fast food

Copyright 2011 John Wiley &

6-16
Sons, Inc.
The product–process matrix

Legal service,
Medical diagnosis
Tutorial

Charted travel
Teaching a class

Preaching, sermons
Mass retailers
Live shows
Cafeteria
TV, radio
 Schmenner’s service matrix

Butterworth, p-112
James H. Gilmore & B. Joseph Pine II: HBR, January 1997
The change of process choice in a
product life cycle
 Comparison

Russell & Taylor

 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

Copyright 2011 John Wiley & Sons, Inc. 6-22

 Process Selection With
Break-Even Analysis
• Total revenue
– price times volume sold
• Profit
– difference between total revenue and total cost

Copyright 2011 John Wiley & Sons, Inc. 6-23

 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

Copyright 2011 John Wiley & Sons, Inc. 6-24

 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)

Copyright 2011 John Wiley & Sons, Inc. 6-25

 Break Even Analysis
Travis and Jeff own Up Right Paddlers, a new startup company with the goal of
designing, making, and marketing stand-up paddle boards for streams and rivers. A
new fitness craze, stand-up paddle boards are similar to surfboards in appearance, but
are used by individuals to navigate down rivers in an upright position with a single
long pole (or paddle), instead of sitting in tubes or rafts and floating down. The boards
are constructed from heavy duty raft material that is inflatable, rather than the
fiberglass material used in surfboards. Unlike surfboards that market for $500 to
$1000 each, paddle boards are typically sold for between $100 and $400.
Since Travis and Jeff are just starting out and the demand for paddle boards on the
East Coast has not been firmly established, they anticipate selling their product for
$100 each. Travis estimates the fixed cost for equipment and space will be $20,000,
and the material and labor costs will run $50 per unit. What volume of demand will be
necessary for Travis and Jeff to break even on their new venture?
 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

Copyright 2011 John Wiley & Sons, Inc. 6-27

 Break-Even Analysis: Graph

Dollars

$3,000 — Total
cost
line

$2,000 —

$1,000 —

Total
revenue
line
40 Units
Break-even point

Copyright 2011 John Wiley & Sons, Inc. 6-28

 Process Selection
Jeff, the more optimistic of the two owners of UpRight Paddlers,
believes that demand for paddle boards will exceed the
breakeven point of 40 units calculated in Example 6.1. He
proposes spending $10,000 in fixed costs to buy more
automated equipment that would reduce the materials and
labor cost to $30 per board. The boards would sell for $100,
regardless of which manufacturing process is chosen. Compare
the two processes and determine for what level of demand each
process would be preferred. Label Travis’ proposal as Process A,
and Jeff’s proposal as Process B.
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

Copyright 2011 John Wiley & Sons, Inc. 6-30

 Cost Functions of Processing
Annual Cost of Alternatives
Production ($000)

2,000
Automated
1,500 Assembly Line
Preferred
Cellular
1,000
Manufacturing
Job
Preferred
500 Shop
Preferred
Units
Produced
100,000 250,000 Per Year