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Process Selection and Capacity Planning

The document discusses process selection and capacity planning, outlining various types of processes such as intermittent, repetitive, project, batch, line, and continuous operations. It emphasizes the importance of capacity planning in determining output rates and optimizing resource utilization, while also detailing methods for measuring and evaluating capacity. Additionally, it introduces decision-making tools like decision trees to aid in capacity planning decisions amidst uncertainties in demand.

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0% found this document useful (0 votes)
12 views32 pages

Process Selection and Capacity Planning

The document discusses process selection and capacity planning, outlining various types of processes such as intermittent, repetitive, project, batch, line, and continuous operations. It emphasizes the importance of capacity planning in determining output rates and optimizing resource utilization, while also detailing methods for measuring and evaluating capacity. Additionally, it introduces decision-making tools like decision trees to aid in capacity planning decisions amidst uncertainties in demand.

Uploaded by

belayterefa76
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 32

CHAPTER:

CHAPTER: 4 4
Process
Process Selection
Selection and
and
Capacity
Capacity Planning
Planning
Process Design
Selection
 Process:
 Is any part of an organization which takes a set of
input resources which are then used to transform
something into outputs of products or services.
 It is a group of related tasks with specific inputs
and outputs.
 Process design defines what tasks need to be done
and how they are to be coordinated among
functions, people, and organizations. 2
Types of Processes
 All processes can be grouped into two broad
categories: intermittent operations and repetitive
operations.
 Intermittent operations:
 Capable of producing a large variety of
product designs in relatively low volumes
 Repetitive operations:
 Capable of producing one (or a few)
standardized designs in very high volumes
3
 Project process – make a one-at-a-time product exactly to
customer specifications
 Examples, construction, shipbuilding, medical procedures, creation of
artwork, custom tailoring. Customer is usually involved on the design of
the product
 Batch process – small quantities of product in groups or
batches based on customer orders or specifications
 They are also known as job shops.
 Examples can be seen in bakeries, education, and printing shops.
 The difference is in the volume and degree of customization.

4
 Line processes are designed to produce a large volume
of a standardized product for mass production.
 They are also known as flow shops, flow lines, or assembly
lines.
 produced in high volume with little or no customization.
 cars, computers, television sets, shoes, even food items.
 Continuous processes operate continually to produce a
very high volume of a fully standardized product .
 E.g oil refineries, water treatment plants, and certain paint
facilities.
 The products produced are usually in continual rather than
discrete units, such as liquid or gas.

5
Continuum of Process
Types

Repetitive

6
Differences between
Intermittent and repetitive
Operations

Decision Intermittent Repetitive


Product Variety Large Small
Degree of Standardization Low High
Path through Facility Varied pattern Line Flow
Critical Resource Labor Equipment
Importance of Work Skills High Low
Type of Equipment General Purpose Specialized
Degree of Automation Low High
Throughput Time Longer Shorter
Work-in-Process Inventory More Less

7
Cont’d
 Type of operation is directly related to
product and service strategy
 Three basic strategies include
 Make-to- stock ; in anticipation of demand
 Assemble-to-order; built from standard
components on order
 add options according to customer
specifications
 Make-to-order; produce to customer
specification at time of order
8
Product and Service Strategy
Options

9
Linking Design and Process
Selection

10
Capacity Planning
 Capacity is defined as the ability to achieve, store or
produce.
 For an organization, capacity would be the ability of a

given system to produce output within the specific time


period.
 In OM context, capacity is referred as an amount of the

input resources available to produce relative output over


period of time.
 In general, terms capacity is referred as maximum

production capacity, which can be attained within a


normal working schedule.
Capacity planning
 Capacity planning is the process of establishing
the output rate that may be needed at a facility:
 It is essential to be determining optimum
utilization of resource and plays an important role
decision-making process.
 Planning for capacity in a company is usually

performed at two levels


1. Strategic issues: how much and when to
spend capital for additional facility &
equipment
2. Tactical issues: workforce & inventory levels,
& day-to-day use of equipment
Measuring
Capacity
Capacity Information Needed
1. Design capacity:
 Maximum output rate under ideal

conditions
 A bakery can make 30 custom cakes

per day when pushed at holiday time


2. Effective capacity:
 Maximum output rate under normal

(realistic) conditions
 On the average this bakery can make

20 custom cakes per day


 Actual or operating capacity: This is the

rate of output actually achieved.


Calculating Capacity Utilization
 Measures how much of the available
capacity is actually being used:
actual output rate
Utilization  100%
capacity
 Measures effectiveness
 Use either effective or design capacity in
denominator
 Eg. Computing Capacity Utilization: In the
bakery example the design and Effective
capacity are 30 and 20 respectively custom
cakes per day. Currently the bakery is
producing 28 cakes per day. What is the
bakery’s capacity utilization relative to both
design and effective capacity?

actual output 28
Utilization effective  (100%)  (100%) 140%
effective capacity 20

actual output 28
Utilization design  (100%)  (100%) 93%
design capacity 30
The current utilization is only slightly below its design
capacity and considerably above its effective capacity
The bakery can only operate at this level for a short period of
time
Capacity consideration
 Economies of Scale: Where the cost per unit of output
drops as volume of output increases
 average cost of a unit produced is reduced when

the amount of output is increased.


 The reason is that when a large amount of goods is

produced, the costs of production are spread over that


large volume
o Diseconomies of Scale: Where the cost per unit rises

as volume increases
 Often caused by congestion (overwhelming the

process with too much work-in-process) and


scheduling complexity
 occurat a point beyond the best operating level, when
the cost of each additional unit made increases
 Focused factories:
 Small, specialized facilities with limited
objectives
 Plant within a plant (PWP):
 Segmenting larger operations into smaller
operating units with focused objectives
 Subcontractor networks:
 Outsource non-core items to free up capacity
for what you do well
Making Capacity Planning
Decisions
 Step 1: Identify Capacity Requirements
 Step 2: Develop Capacity Alternatives
 Step 3: Evaluate Capacity Alternatives
1. Identifying capacity requirements
 Forecasting Capacity:
Long-term capacity requirements based on future demand
Identifying future demand based on forecasting
Forecasting, at this level, relies on qualitative forecast
models such as Executive opinion & Delphi method
Forecast and capacity decision must included strategic
implications
 Capacity cushions
Extra capacity used to offset demand uncertainty
can be helpful if demand is greater than expected.
 Strategic Implications
How much capacity a competitor might have
Potential for overcapacity in industry a possible hazard
2. Developing Capacity Alternatives
 Capacity alternatives to modify its capacity include:
do nothing,
expand large now (may included capacity cushion), or
expand small now with option to add later
 With the alternative to do nothing, the company would not
be able to meet any demands that exceed current capacity
levels.
 The other alternatives is deciding whether to purchase one
large facility now or add capacity incrementally.
3. Evaluating Capacity Alternatives
 managers have to use many different inputs, as well as
their judgment, in making the final decision.

One of the most popular of these tools is the decisiontree.
 So decision tree is method of evaluating capacity
 A decision tree is a diagram that models the
alternatives being considered and the possible
outcomes.
 Decision trees help by giving structure to a series of
decisions and providing an objective way of evaluating
alternatives.
 Decision trees are useful whenever we have to evaluate
interdependent decisions that must be made in sequence
and when there is uncertainty about events.
 For that reason, they are especially useful for evaluating
capacity expansion alternatives given that future demand
is uncertain.
Decision tree information's
 Decision points. These are the points in time when

decisions, such as whether or not to expand, are


made. They are represented by squares, called
“nodes.”
 Decision alternatives. Buying a large facility and

buying a small facility are two decision


alternatives. They are represented by “branches”
or arrows leaving a decision point.
 Chance events. These are events that could affect the
value of a decision. E.g., demand could be high or low.
Each chance event has a probability of occurring. E.g,
there may be a 60% chance of high demand and a 40 %
chance of low demand.
 Remember that the sum of the probabilities of all
chances must add up to 100 %. Chance events are
“branches” or arrows leaving circular nodes.
 Outcomes. For each possible alternative an outcome is
listed. In our example, that may be expected profit for
each alternative (expand now or later) given each chance
event (high demand or low demand).
Solution
 To solve this problem we first need to draw the
decision tree for Anna’s problem then add the
given information to the diagram and proceed to
evaluate it.
 We drew the decision tree from left to right. To
evaluate it, we work backward, from right to left, to
determine the expected value.
 The expected value (EV) is a weighted average of the
chance events, where each chance event is given a
probability of occurrence.
 We start with the profitability of each alternative,
working backward and selecting the most profitable
alternative.
 For example, at node 2 we should decide to expand
further, because the profits from that decision are higher
($200,000 versus $150,000). If we come to that point,
that is the decision we should make.
1. To solve a decision tree, work from right to
left. At each circle representing chance
event, compute the expected value
2. write the Evs below each circle
3. select the alternative with the highest EV
 The EV of profits at that point is written below
node 2. This is the EV if we decide on a small
expansion and high demand occurs.
 To compute the EV of the small expansion, we

evaluate it as a weighted average of estimated


profits given the probability of occurrence of
each chance event:
EV,small
expansion=0.30($80,000)+0.70($200,000)=$164,000
EV large
expansion=0.30($50,000)+0.70($300,000)=225,000
 The large expansion gives the higher expected
value. This means that Anna should pursue a
large expansion now.

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