© 1997 Prentice-Hall, Inc.
Principles of
Operations Management
Process & Capacity Design
Chapter 5
5-1
Learning Objectives
© 1997 Prentice-Hall, Inc.
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Describe the types of process
strategies
Compare technological alternatives
State how to select a process strategy
Define capacity
Explain how to manage existing
capacity
5-2
Thinking Challenge
© 1997 Prentice-Hall, Inc.
Consider McDonald’s
restaurants. Fact #1:
Franchisees of McDonald’s
have to go to ‘Hamburger
U.’ They protest, ‘But, I’ve
been in the restaurant
business 20 years – I know
the restaurant business!’
‘Yes, but you don’t know
OUR business.’
5-3
McDonald’s
over 95 billion served
© 1984-1994 T/Maker Co.
Thinking Challenge
© 1997 Prentice-Hall, Inc.
Fact #2: A typical
McDonald’s restaurant is
run by unskilled teenagers,
whose mothers can’t even
get them to make their
beds in the morning.
What do these facts & your
own experiences suggest
about McDonald’s
operations?
5-4
Alone
Group Class
McDonald’s
over 95 billion served
© 1984-1994 T/Maker Co.
Process Decisions
© 1997 Prentice-Hall, Inc.
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Involve determining how to produce
a product or provide a service
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Objective
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Meet or exceed customer requirements
Meet cost & managerial goals
Has long-run effects
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Product & volume flexibility
Costs & quality
5-5
© 1997 Prentice-Hall, Inc.
Types of
Process Strategies
The strategies are often classified as:
ProcessRepetitiveProductFocused
Focused
Focused
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Continuum
5-6
Process-Focused Strategy
© 1997 Prentice-Hall, Inc.
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Facilities are organized by process
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Similar processes are together
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Example: All drill presses are together
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Low volume, high variety products
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‘Jumbled’ flow
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Other names
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Intermittent process
Job shop
5-7
Product A
Oper.
1
2
Product B
3
Process-Focused Strategy Pros
© 1997 Prentice-Hall, Inc.
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Advantages
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& Cons
Greater product flexibility
More general purpose equipment
Lower initial capital investment
Disadvantages
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More highly trained personnel
More difficult production planning &
control
Low equipment utilization (5% to 25%)
5-8
Product-Focused Strategy
© 1997 Prentice-Hall, Inc.
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Facilities are organized by product
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High volume, low variety products
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Other names
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Products A & B
Line flow production Oper. 1
Continuous production
2
Where found
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Discrete unit manufacturing
Continuous process manufacturing
5-9
3
Product-Focused Strategy
© 1997 Prentice-Hall, Inc.
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Advantages
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Pros & Cons
Lower variable cost per unit
Lower but more specialized labor skills
Easier production planning & control
Higher equipment utilization (70% to 90%)
Disadvantages
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Lower product flexibility
More specialized equipment
Usually higher capital investment
5 - 10
© 1997 Prentice-Hall, Inc.
Repetitive-Focused
Strategy
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Facilities often organized by
assembly lines
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Characterized by modules
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Parts & assemblies made previously
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Modules combined for many output
options
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Other names
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Assembly line
Production line
5 - 11
© 1997 Prentice-Hall, Inc.
Thinking Challenge:
Compare & Contrast
Process Strategy
Basis of
Comparison
5 - 12
Alone
Group Class
Technology Alternatives
© 1997 Prentice-Hall, Inc.
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General purpose machines
Numerical control machines
Process control
Robots
Automated guided vehicles (AGV)
Flexible manufacturing systems (FMS)
Computer-integrated mfg. (CIM)
5 - 13
© 1997 Prentice-Hall, Inc.
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General Purpose
Machines (GPM)
Machines capable
of performing
many different
operations
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Manually operated
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Found in processfocused facilities
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Low volume
production
5 - 14
Manual Lathe
© 1995 Corel Corp.
Router
© 1995 Corel Corp.
Numerical Control (NC)
© 1997 Prentice-Hall, Inc.
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Used in computeraided mfg. (CAM)
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Using computers to
program, direct, &
control machines
Numerical control
(NC) machine
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Repeat operations by
reading punch paper
or magnetic tape
5 - 15
Computer numerical
control (CNC) machine
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Programmable by
operator at machine
Has own memory
Direct numerical
control (DNC) machine
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Has own memory
Connected to computer
running many machines
Process Control
© 1997 Prentice-Hall, Inc.

Use of information
technology to
control physical
process
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Example: Measure
thickness of
wallboard
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Found in product &
repetitive-focused
facilities
5 - 16
Actual avg.
Planned avg.
Process limits
© 1995
Corel
Corp.
Robots
© 1997 Prentice-Hall, Inc.
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Machines that hold,
move, or grasp items
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Perform
monotonous or
dangerous tasks
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Used when speed,
accuracy, or
strength are
needed
5 - 17
© 1984-1994 T/Maker Co.
© 1997 Prentice-Hall, Inc.

Automated Guided
Vehicles (AGV)
Material handling
machines
© 1984-1994 T/Maker Co.
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Used to move
parts & equipment
in manufacturing
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May be used to
deliver mail &
meals in service
facilities
5 - 18
© 1997 Prentice-Hall, Inc.
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Flexible Manufacturing
Systems (FMS)
Using automated
machines (DNC) &
materials handling
equipment together
Often connected to
centralized computer
Also called
automated work cell
Auto Tool
Chg.
Machine 1
Robot
or AGV
Computer
Auto Tool
Chg.
Machine 2
5 - 19
© 1997 Prentice-Hall, Inc.
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Computer-Integrated
Manufacture (CIM)
Mfg. system that
combines CAM with
engineering (CAD),
& production &
inventory control
Computer-aided
design (CAD)
creates code to
run DNC machines
Top
Mgmt
CAD
PIC
DNC
Robots
AGV
CAM
5 - 20
Production Process &
Technology Alternatives
© 1997 Prentice-Hall, Inc.
# Different Products or Parts
High
General Purpose,
NC, CNC
CIM
Flexible Mfg.
System
Low
Low
5 - 21
Dedicated
Automation
High
Volume of Products or Parts
© 1997 Prentice-Hall, Inc.
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Production flexibility
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Factors Affecting
Process Alternatives
Product volume
Product variety
These factors
reduce the number
of alternatives!
Technology
Cost
Human resources
Quality
Reliability
5 - 22
© 1984-1994 T/Maker Co.
© 1997 Prentice-Hall, Inc.
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Long-term factors
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Process Investment
Evaluation
Fit with company strategic plan
Competitive advantage
Product life cycle
Operating factors (e.g., scrap, training)
Financial return
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Break-even analysis
Cash flow analysis (IRR, NPV)
5 - 23
Break-Even Analysis
© 1997 Prentice-Hall, Inc.
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Technique for evaluating process &
equipment alternatives
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Objective: Find the point ($ or units) at
which total cost equals total revenue
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Assumptions
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Revenue & costs are related linearly to
volume
All information is known with certainty
No time value of money
5 - 24
Facility Planning
© 1997 Prentice-Hall, Inc.
Facility planning answers:
 How much long-range capacity is
needed
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When more capacity is needed
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Where facilities should be located
(location)
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How facilities should be arranged
(layout)
5 - 25
Capacity
© 1997 Prentice-Hall, Inc.
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Maximum output of a system in a
given period (general definition)
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May be units, hours, dollars, sq. ft. etc.
Example: Tons of steel per month
Effective capacity: Maximum output
given standards, product mix, etc.
Rated capacity: Maximum usable
output given utilization & efficiency
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RC = (Capacity)(Utilization)(Efficiency)
5 - 26
© 1997 Prentice-Hall, Inc.
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Capacity Definition
Thinking Challenge
How would you define capacity for
the following firms (e.g., steel mill,
tons of steel per day):
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Beer brewery
Auto plant
Restaurant
Warehouse
Grocery store
5 - 27
Alone
Group Class
Utilization
© 1997 Prentice-Hall, Inc.
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Measure of planned or actual capacity
usage of a facility, work center, or
machine
Utilization 

5 - 28
Expected capacity
Capacity
Planned hours to be used
Total hours available
Efficiency
© 1997 Prentice-Hall, Inc.

Measure of how well a facility or
machine is performing when used
Efficiency 
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5 - 29
Actual output
Effective capacity
Actual output in units
Standard output in units
Average actual time
Standard time
Utilization Example
© 1997 Prentice-Hall, Inc.
You’re owner of a small
florist shop. Normally,
your shop is open 8 hr./day
Monday to Friday, & 4 hr.
on Saturday. During the
summer, you’re closed on
Monday & Saturday. What
is your capacity, expected
capacity, & utilization
during the summer?
5 - 30
© 1995 Corel Corp.
© 1997 Prentice-Hall, Inc.
Utilization
Thinking Challenge
© 1984-1994
T/Maker Co.
You’re operations manager
of a paper company.
Given the expensive
machinery, full capacity is
3 shifts, 7 days per week.
Since demand is slow,
you’ve scheduled 3 shifts,
6 days per week. What is
your capacity, expected
capacity, & utilization?
© 1995 Corel Corp.
5 - 31
Alone
Group Class
© 1997 Prentice-Hall, Inc.
Rated Capacity
Thinking Challenge
© 1984-1994
T/Maker Co.
The standard rate of output
of a paper mfg. machine is
1800 ft./min. Records
show that the actual
average rate is 1710
ft./min. Present utilization
is 85.7%. The plant was
designed to make 92,000
tons of paper per year.
What is the rated capacity?
© 1995 Corel Corp.
5 - 32
Alone
Group Class
© 1997 Prentice-Hall, Inc.
Capacity Planning
Process
Forecast
Demand
Develop
Alternative
Plans
Quantitative
Factors
(e.g., Cost)
Compute
Rated
Capacity
Evaluate
Capacity
Plans
Qualitative
Factors
(e.g., Skills)
Compute
Needed
Capacity
Select Best
Capacity
Plan
5 - 33
Implement
Best Plan
© 1997 Prentice-Hall, Inc.
Managing
Existing Capacity
Demand Management
Capacity Management
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Vary prices
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Vary staffing
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Vary promotion
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Change lead times
(e.g., backorders)
Change equipment
& processes
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Change methods
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Redesign the product
for faster processing
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Offer complementary
products
5 - 34
Conclusion
© 1997 Prentice-Hall, Inc.





Described the types of process
strategies
Compared technological alternatives
Stated how to select a process strategy
Defined capacity
Explained how to manage existing
capacity
5 - 35