Production and

Operations Management
Ataklty Adugna (Ass. Professor)
Mekelle University
College of Business and
Economics
Department of Management
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 CHAPTER-IV

PROCESS SELECTION AND

CAPACITY PLANNING

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4.1. Process
Selection

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Introduction
process is any part of an organization that
takes inputs and transforms them into
outputs that, it is hoped, are of greater
value to the organization than the original
inputs.
All processes convert inputs into outputs.

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 Cont…
1.Food Process
.
Inputs Process Output

Raw vegetables Cleaning

Canned
Metal sheets Making cans
vegetables
Water Cutting
Energey Cooking
Labor Packing
Building Labeling
Cooking equipments
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 Cont…
1. Hospital Process

Inputs Process Output

Doctors and Nurses Examination

Hospital Surgery
Medical Supplies
Healthy patents
Equipments Monitoring
patients
Laboratories Medication

Therapy 6
Process Selection
Process selection refers to the way an
organization chooses to produce its goods
or provide its services.
Essentially it involves the choice of
technology.
Process Selection has major implications
for:

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Cont…
capacity planning
 layout of facilities
 equipment and
 design of work systems.

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Cont…
A good relation has to prevail among:
a) Operations strategy
b) New product development and
c) Process selection

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 Importance of Process Selection
Decisions
They are strategic in nature demanding
special coordination among the functional
areas.
They greatly affect the business’s ability
to realize its mission.
They affect it ability to experience a good
competitive advantage.
They affect a firm’s ability to meet
customers’ demand.
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Process Selection cont…
Process decisions are affected by the operations
strategy which addresses the issues of:
1. Make or Buy decision
 The make or buy decision is the perquisite for
process selection.
 Factors considered in the make or buy decision
are:
 Available capacity
 Available and required expertise
 Quality consideration
 The nature of demand
 Production and Purchase Cost
2. Process Flexibility and
3. Degree of automation or capital intensity
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Types of Processes
Continuous Processes
 Continuous processes are employed
when a highly uniform product or
service is produced or rendered.
 Continuous processes are characterized
by:
 Perfect product standardization
 Very high product volume
 Specialized purpose or function

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cont
 Expensive process equipments
 Logical arrangement of the equipments
 Products are continuous rather than
discrete.
 Shut-downs and start-ups are costy
 High vulnerable to shutdowns
 Low personnel skills required
 Wide span of supervision

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Semi continuous Processes
Semi-continuous processes also called
repetitive processes are employed to produce
outputs that allow for some variety
products are highly similar but not identical.
Typically, these products are produced in
discrete units.
High volume products
Relatively low skills
Relatively greater product variety

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Intermittent Processes
Processes used to produce a variety of
products with different processing
requirements in lower volumes.
Volume is much lower than in continuous
and semi-continuous systems.
The equipments are general purpose.
Workers are semi skilled and skilled
Span of supervision is narrow

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Batch Processes
are intermittent processes that are used
when companies need to produce
moderate volumes of similar products.
Batch manufacturing companies make a
batch of one product, then switch over
(set up) the equipment and make a batch
of another item.

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Job Shops
 are also intermittent processes that are used
to produce small lots, low volume products.
Equipments involved are general purpose,
and the need for skilled workers to operate
and supervise such highly flexible
equipments is tremendously high.
What distinguishes the job shop operation
from batch processing is that the job
requirements often vary considerably from
job to job.

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Project Type
A project is a highly flexible and low volume type
operation.

 Usually the item to be produced stays in a fixed place

and all the resources come to it.

 At the end of production, resources leave the place.

 Some types of service operations may also be called as

Projects because they involve a team of people over a
period of time and then they leave the project.

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Intermittent and Repetitive (continuous and semi-
continuous) Operations

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Underlying Process Relationship between Volume and
Standardization Continuum

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Product-Process Matrix

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4.2. Capacity Planning
Defining Capacity
 Capacity is the upper limit or ceiling on
the load that an operating unit can handle
during a specified time period.
 The capacity of an operating unit is an
important piece of information for
planning purposes

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Example
A department works one eight-hour shift,
250 days a year, and has using one
machine in kind, and detailed information
regarding processing requirements and
demand size for three different products is
presented in the table below:

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 The question is to determine the number of machines
(capacity) that the department has to have to meet the
above demand requirements.
Product Annual Standard Processing Time
Demand Processing Time Needed (Hr.)
per Unit (Hr.)

#1 400 5.0 2,000

#2 300 8.0 2,400

#3 700 2.0 1,400

Total 5,800
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Basic Questions in CP
Whatkind of capacity is needed?
How much is needed?
When is it needed?

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Steps in the Capacity Planning Process
Estimate the capacity of the present
facilities
Forecast the long-range future capacity
needs
Determine the gap between future capacity
requirement and current production
capacity
Identify and analyze sources of capacity to
meet this gap
Select from among the alternative sources
of capacity
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Application of Decision Trees
Decision trees require specifying
alternatives and various states of nature.
For capacity planning situations, the state
of nature usually is future demand or
market favorability.
Example:

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Capacity decisions are important in
that capacity:
1. determines a firm’s ability meeting
demand
2. determines a firm’s operating costs
3. Determines a firm’s initial investment
4. Involves long-term commitment of
resources
5. Affects a firm’s competitive advantage

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 Measuring Capacity
 Even though defining capacity seems
simple enough, there are subtle difficulties in
actually measuring capacity in certain cases.

These difficulties arise because of different

interpretations of the term capacity and
problems with identifying suitable measures
for a specific situation.

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Types of Capacities
Design Capacity
Effective Capacity
Actual Capacity
These different measures of capacity are
useful in defining two measures of system
effectiveness:
1. efficiency and
2. utilization.

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Cont…
Efficiency is the ratio of actual output to
effective capacity. Utilization is the ratio of
actual output to design capacity.

ActualCapacity
Efficiency  x100
EffectiveCapacity

actual output
Utilization  x100
Design capacity
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Example
It is common for managers to focus
exclusively on efficiency, but in many
instances, this emphasis can be misleading.
Given the information below, compute the
efficiency and the utilization of the vehicle repair
department:
Design capacity = 50 trucks per day
Effective capacity = 40 trucks per day
 Actual output= 36 trucks per day

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Developing and Evaluating Capacity
Alternatives
1. Qualitative Factors
a. Designing flexibility into the system
b. Take a big picture approach capacity
changes
c. Prepare to deal with capacity chuncks
d. Identify the optimum operating level

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.

Diseconomies of
Economies of Scale
Scale

Best (Optimal) Operating

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level
 2. Quantitatively
a. Cost-Volume Analysis
 Cost-volume analysis, also called
Break-Even Analysis, focuses on
relationships between cost, revenue,
and volume of output.
The purpose of cost-volume analysis
is to estimate the income of an
organization under different
operating conditions.
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Assumptions of Cost-Volume Analysis:

One product is involved

Everything produced can be sold
Variable cost per unit is the same
regardless of volume
Fixed costs do not change with volume
Revenue per unit is constant with volume
Revenue per unit exceeds variable cost
per unit

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Cont…

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Decision Tree Approach
Decision tree is a quantitative technique
evaluating alternatives and structures a complex
and multiphase decisions by showing:
The decisions that must be made (the candidate
alternatives available)
The sequence in which the decisions must occur
The interdependence among the decisions
(shows main branches and sub-branches
Example:

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 Financial Analysis
NPV

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