DDiT

DIRE DAWA INSTITUTE OF TECHNOLOGY

ድሬ ዳዋ ቴክኖሎጂ ኢንሰቲትዩት
DIRE DAWA UNIVERSITY
ድሬ ዳዋ ዩኒቨርሲቲ

Dire Dawa Institute of Technology

School of Mechanical and Industrial Engineering

Production and Operation Management (IEng6101)

Chapter Four: Assignment 4:
Process Design, Selection and Capacity Planning
Submitted By:
Dagne Regassa

ID No:

Submitted To:
Dr. Kassu Jilcha (Assoc. Prof.)

December 2022
Dire Dawa, Ethiopia
Assignment 4: Process Design, Selection And Capacity Planning 2022

Assignment Four: Process Design, Selection and Capacity Planning

Part I: Essay Type Questions
1) What Is The Difference Between Process Types Like Project, Job Shop, Batch Process, Line
Process And Continuous Process?
Ans.
Introduction
In practice the division between the different process types is not absolute and exact; the types
should rather be seen as archetypes. Same product can be produced in different types: for example
an equipment manufacturer could have a production line for high volume products and a job shop
for small volume customized products. Or the different steps in the overall production process may
involve different production types: for example parts production is batch production and the final
assembly a repetitive process. In addition to the volume-variance –division the different
production types can be depicted according to the material flow shape: how many different items
are there along the way in the processing? Thus production can be divergent / V-type (for example
raw material copper is drawn into many different sizes of tubes) or convergent / A-type (one
machine is assembled from several different components). Also other forms exist. For example the
production of modular products would be divergent-convergent: from a large amount of raw
materials and components a limited amount of modules are produced, and through combining
these modules in different combinations one can create a high amount of different variants. The
production types can be classified also depending on the way the production is managed,
especially according to the OPP (Order penetration point). These different forms are discussed
here under.
a) Project
 Very high flexibility
 Unique product
 Capital investment very low
 Variable cost very high
 Labor content and skill very high
 Volume one
b) Job Shop
 high variety of items

1|Page
Assignment 4: Process Design, Selection And Capacity Planning 2022

 low in volume
 use general purpose resources (machineries and equipments)
Examples: print shop,
c) Batch Process
 produced in lots
 medium variety
 medium volume
 medium quantity
Examples: drugs and pharmaceuticals, chemicals
d) Line Process
 Large quantity of the same product
 low variety
 high volume (high rate of production)
Examples: automobile plants, food processing, beer bottling, soft drink
e) Continuous Process
 Production of indefinite period
 Flow production (un-interrupted flow i.e. 24hrs.*7days all over year)
 Very high volume
 Very low variety (ranging from a large number of possible sequence of activities
to only one possible sequence)
 Has fixed sequence of activities
 Direct labor content and associated skill is low
 Skill level to oversee the sophisticated equipment in the process is high
Examples: petrochemicals refinery, edible oil refinery, steel production, paper production,
beer brewery, sugar processing etc.
Summary of Basic Difference among Various Types of Processes
 In line process fixed cost substantially higher than variable cost the reverse is true for the
Batch process. Batch process is at low volume and cheapest to install.
 Continuous process is normally faster delivery time as compared batch process.
 Continuous process is less flexible (flow is fixed path) than job shop process
 In batch processing, because entire batches are processed at once, it’s harder to have

2|Page
 Assignment 4: Process Design, Selection And Capacity Planning 2022

good quality control. Often, defects are not caught until the entire batch has been
completed however; in Continuous flow processing finding defects and fixing them are
easier. Because one product is completed at a time, checking the first product and then
adjusting the process if needed allows for defects to be easily prevented.
 Because of the decreased cost, increased quality, and increased productivity, continuous
flow is usually the better choice in most applications.
 In project and job shop the equipment tends to be general purpose equipment with high
requirements for flexibility, whereas in line process and continuous process the
equipment is often special purpose equipment, designated for producing one type of
product, and the flexibility for product changes tends to be lower.

 in the project production the main focus is on the schedule of the project with its critical
path, in a repetitive line production the key question is the best sequence for the products
to be produced, and coordinating the material flow accordingly.

 In project or job shop there is more likely a need for the operators to be able to carry out
many different tasks, whereas in line process the work is divided into smaller tasks,

which need to be mastered fast and precisely .

Functions pro

Project Job shop Batch Line process continues

Cost estimation Simple to Difficult Somewhat Routine Routine

complex routine

Cost per unit Very High High Moderate Low Low

Equipment used Varied General General purpose Special Special

purpose purpose purpose

Fixed cost Varied Low Moderate High Very high

Variable cost High High Moderate Low Very low

Labors skills Low to high High Moderate Low Low to high

3|Page
 Assignment 4: Process Design, Selection And Capacity Planning 2022

marketing Promote Promote Promote Promote Promote

capability capability capability, semi- standardized standardized
standardized goods/ service goods/ service
goods & service

Scheduling Complex, subject Complex Routine Routine Routine

to change

Work-in- Varied High low Low Low

process
inventory

Table 1. difference among types of process depending on various function

Factors Project Job Shop Batch Process Line Process Continuous Process

Flow none continuous

Flexibility high low

No. Of Products high low

Capital Investment low high

Variable Cost high low

Labor Content high low

Labor Skill high low

Volume low high

Table 2. Difference among various types of processes considering various process factors

4|Page
Assignment 4: Process Design, Selection And Capacity Planning 2022

2) What Is Capacity Cushion? Represent Using Formula.

Ans.
Capacity cushion is the amount of reserve capacity hold to handle sudden increases in demand
or temporary losses of production capacity due to various factors such as machine failure,
unfavorable conditions happened in production area. As a general guide, the average utilization rate
should not be too close to 100% over a long-term period the amount of spare capacity a business
has expressed as a percentage of the total capacity. The capacity can refer to any business activity
such as production capacity, staff capacity planning etc.
It is important that a business has a capacity cushion in order to be able to deal with peak demands
for the activity. If the cushion gets too low then it indicates to the business that additional capacity
is required to hold certain amount. This is not only for goods but it also applied to workers in order
to avoid workforce limitation when some uncontrolled phenomena faced the worker in duty. This is
what we call standby for the case of industry. In other words, it measures the amount by which the
average utilization lies within 100 percent. Therefore,

Capacity cushion = 100% - Utilization rate (%)

The Cushion size varies from industries to industries. The industries giving more priority to capital
investments, i.e. where machines may costs up to millions of Birr each, cushions well under 10%
are preferred. 15 – 20% of cushions are considered in the electricity generating units. The
organizations such as hotels are less capital-incentive and break even with 30 to 40% of cushion.
The more capital intensive firms like shipping industries, prefers cushions as small as 5%.While
demand varies, businesses find large cushions to be appropriate. In Grocery industries, demand on
some days (in the seasons of festivals) of the week is predictably higher than the demand on the
other days. Long customer waiting times cannot be acceptable as customers grow restless if they
have to wait in a supermarket checkout line for more than a few minutes. Quick customer service
needs supermarkets to maintain a capacity cushion large enough to handle peak demand. While the
future demands are uncertain, large cushions are beneficial to the organization. Another type of
demand uncertainty occurs with a changing product mix. The load may shift unpredictably from
one work to another as the mix changes, while the demands might be stable. Large capacity cushion
is encouraged by the uncertainty in supply. Capacity frequently comes in large increments, thus

5|Page
 Assignment 4: Process Design, Selection And Capacity Planning 2022

expanding even by the minimum amount possible may create a large cushion. Penalty costs for
overtime and sub-contracting can create the need for further enhanced in capacity cushions.

The unused capacity costs money, it is the only reason in the favor of the small capacity cushions.
In capital incentive firms, minimizing the cushions is vital. Studies mentioned that businesses with
high capital intensity attain a low return on investment in equipment makes high utilization less
critical.

Let me discuss the formula and example to consolidate my explanation in detail.

The capacity cushion can be defined in terms of the spare capacity or alternatively in terms of the
capacity utilized.

Total capacity = utilized capacity + spare capacity

----------------------------------- (1)

Capacity cushion + capacity utilized = 100 %------------------------(2)

Capacity cushion = 100% - Capacity Utilization -------------------- (3)

Example 1: on service

Suppose Ethio Telecom operates a call center for customer service, and employs customer service
operator working 5 hours each day. If each operator needs to handle 120 telephone calls each day
and each call takes 1.50 minutes, then what is the cushion for this specific service?

Given:
 Operator working hr. = 5hrs.
 Telephone call received daily = 120
 Time needed for each call = 1.5min.

6|Page
Assignment 4: Process Design, Selection And Capacity Planning 2022

Required
Capacity cushion (in %)

Solution
Before proceed the calculation let’s make unit uniform;
Total capacity = 5 hours x 60 = 300 minutes
Utilized capacity = 120 x 1.50 = 180 minutes

Then using equation (3) above we can calculate capacity cushion

Capacity cushion = 100% - Capacity utilization
Capacity cushion = 100% - 60% = 40%
We can also compute by considering the spare capacity’

Total capacity = 5 hours x 60 = 300 minutes

Utilized capacity = 120 x 1.50 = 180 minutes
Spare capacity = 300-180 = 120 minutes

3) Consider an example in which the capacity requirement for an application is 400 GB. The
number of IOPS generated by the application at peak workload is estimated at 5,000 IOPS. The
vendor specifies that a 40GB, 15,000-rpm drive is capable of doing a maximum 250 IOPS.
Calculate the required number of disk drives that can meet both capacity and performance
requirements of an application.
Given:
 capacity required for application = 400 GB
 Number of IOPS at peak = 5,000 IOPS
 Vendor’s specification = 40GB, 15,000rpm drive capable of doing max. 250 IOPS

7|Page
Assignment 4: Process Design, Selection And Capacity Planning 2022

Required:
 number of disk
Information!
IOPS is a common unit of measurement for storage system performance based on drive speed and
workload type. It is the standard unit of measurement for the maximum number of reads and writes

to non-contiguous storage locations . IOPS is frequently referenced by storage vendors to

characterize performance in HDD and storage area networks. However, an IOPS number is not an
actual benchmark, and numbers promoted by vendors may not correspond to real-world
performance.
Throughput measures how many units of information a system can process in a period of time. It
can refer to the number of I/O operations per second, but is typically measured in bytes per second.
On their own, IOPS and throughput cannot provide an accurate performance measurement.

Acronym
IOPS input/output operations per second
GB Giga Byte
rpm Revolution per Minute
HDD hard disk drives
I/O input/output
DC Disk capacity
Di Disk IOPS
Solution

 The Number Of Disks Required To Meet The Capacity Requirements Will Be:

To meet 5,000 IOPS, the number of disk required will be:

As a result, the number of disks required to meet the application demand will be
Max. (Dc, Di) = Max. (10, 20)= 20 Disks
8|Page
 Assignment 4: Process Design, Selection And Capacity Planning 2022

From the above analysis it is arrived that we need 20 disks to meet the
application requirement in terms of its capacity, IOPS & response time.

4) XYZ title Company is analyzing its operation in an effort to improve performance. The
following data have been collected: It takes an average of 4 hours to process and close a title,
with value-added time estimated at 30 minutes per title. Each title officer is on payroll for 8
hours per day, though working 6 hours per day on average, accounting for lunches and breaks.
Industry standard for labor utilization is 80 percent. The company closes on 8 titles per day,
with an industry standard of 10 titles per day for a comparable facility. Determine process
velocity, labor utilization, and efficiency for the company. Can you draw any conclusions?
Given:
 Av. Process time/throughput time = 4hrs. (240min)
 Av. daily working time = 6hrs.
 Value added time = 30 min.
 Time for payroll = 8hrs.
 Industry labor utilization standard = 80%
 Title daily produced = 8pcs.
 Industry daily title production standard = 10pcs.
Required:
i. process velocity
ii. labor utilization
iii. efficiency of the company
iv. give conclusion
Solution
i. Process Velocity is defined as the ratio between the throughput time and the value-added
time for completion of the product and or service.

ii. Labor Utilization is the ratio between the actual time spend on working and the actual time
employed therefore,

9|Page
 Assignment 4: Process Design, Selection And Capacity Planning 2022

( )

Whereas Industry standard is given as 80%

iii. Efficiency is ratio between the actual output and some standard for the process, therefore it
is calculated as;

( )

CONCLUSION:
As we examine from end results, XYZ Title Company has being running below industry labor
utilization standard (75% as compared to 80%). In order to achieve the industry standard target,
working hour needs to be increased to 6.4 as against 6 similarly; the actual output is below the
Industry standard which is 80% efficiency. Generally the Lower utilization and lower efficiency
results in lower productivity of the company.

5) In the bakery example, we have established that design capacity is 30 pies per day and
effective capacity is 20 pies per day. Currently, the bakery is producing 27 pies per day. What
is the bakery’s capacity utilization relative to both design and effective capacity?

Given:
 Design capacity = 30 pies/day
 Effective capacity = 20 pies/day
 Actual production capacity = 27 pies/day
Required:
a) Capacity utilization relative to design capacity
b) Capacity utilization relative to effective capacity
Information!
Capacity utilization refers to how much of a factory's production capacity is currently being
utilized. The KPI tracks how much of a manufacturing operation's potential output is being met
and includes everything from machinery capacity to available resource utilization.

10 | P a g e
 Assignment 4: Process Design, Selection And Capacity Planning 2022

Solution
a) Capacity utilization relative to design capacity

b) Capacity utilization relative to effective capacity

Conclusion
As illustrated above, current capacity utilization with respect to effective capacity seems
excellent however; this is not guarantee the bakery’s capacity utilization since this capacity
may not sustain due to different factors. Regarding design capacity, currently capacity looks
satisfactory since 100% is most of the time not realistic due to various operation challenges or
constraints.

6. Shewa bakery, the owner of Shewa’s Restaurant, has determined that she needs to expand
her facility. The decision is whether to expand now with a large facility, incurring additional
costs and taking the risk that demand will not materialize, or expand now on a smaller scale,
knowing that she will have to consider expanding again in three years. She has estimated the
following chances for demand:
a) The likelihood of demand being high is 0.70.
b) The likelihood of demand being low is 0.30.
She has also estimated profits for each alternative:
c) Large expansion has an estimated profitability of either birr 300,000 or birr 50,000,
depending on whether demand turns out to be high or low.
d) Small expansion has a profitability of birr 80,000, assuming that demand is low. Small
expansion with an occurrence of high demand would require considering whether to
expand further. If she expands at that point, her profitability is expected to be birr
200,000. If she does not expand further, profitability is expected to be birr 150,000.
therefore based on the given data, develop a decision tree to solve Shewa ’s problem

11 | P a g e
 Assignment 4: Process Design, Selection And Capacity Planning 2022

Given:
 Expanding duration = 3yrs.
 The high demand = 0.70.
 The low demand = 0.30.
 Large expansion estimated profitability = Birr 300,000 or Birr 50,000
 Small expansion profitability = birr 80,000 (assuming that demand is Low)
 Further Expansion profitability = birr 200,000 (assuming that demand is High)
 If she doesn’t expand further, profitability = birr 150,000
Required:
 Develop decision tree to solve Shewa’s problem
Solution
High Demand Birr 300,000
0.7

1
Low Demand Birr 50,000

0.3

Low Demand Birr 80,000

0.3

2 Expand Further Birr 300,000

High Demand
3
0.7 don’t expand Birr 150,000

Expand monetary value (EMV) = ∑

EMV (At node 1) = 0.7*Birr 300,000 + 0.3* Birr 50,000 = Birr 225,000

EMV (At node 3) = max.[Birr 200,000, Birr 150,000] = Birr 200,000

EMV (At node 2) = 0.3*Birr 80,000 + 0.7* Birr 200,000 = Birr 164,000

EMV (For large expansion) = EMV (At node 1) = Birr 225,000

12 | P a g e
 Assignment 4: Process Design, Selection And Capacity Planning 2022

EMV (For small expansion) = EMV (At node 2) = Birr 164,000

Based on the higher EMV, best alternative is large expansion with EMV of Birr 225,000

Answer: D (Large Expansion; $225,000)

13 | P a g e
 Assignment 4: Process Design, Selection And Capacity Planning 2022

Reference

1) Business Knowledge Center. (2022, -, -,). NetMBA. Retrieved --- ---, ---,, from
http://www.netmba.com/operations/process/structure/:
http://www.netmba.com/operations/process/structure/
2) Sisense. (2022, - -). Kpis. Retrieved - -, -, from Manufacturing Kpis:
https://www.sisense.com/kpis/manufacturing-kpis/capacity-utilization/
3) Taylor, R. a. (2003, - -). -. Retrieved - -, -, from www.present5.com:
https://present5.com/processes-and-technologies-process-definition-of-process/

14 | P a g e